GRADE 12
ACCOUNTING
REVISION NOTES
SEPTEMBER 2020
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THEORY
FORMATS
EXAM TIPS
SYLLABUS IN BRIEF
DETAILED FINANCIAL INDICATORS
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THEORY
ETHICS AND CORPORATE GOVERNANCE AND ROLE OF PROFESSIONAL BODIES
King Code III report
• Triple bottom line reporting
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Good Governance are
ECONOMIC
ENVIRONMENTAL
SOCIAL
Discipline
(commitment to governance)
Transparency
Independence (not being susceptible to
undue influences
Accountability
Responsible management
Fairness in dealing with stakeholders
Social issues (outside world, the
Environment, the wider
Community)
The King code often serves to bring focus back to good basic principles. These affect:
EXPRESS AN OPINION ON THE FAIR PRESENTATION OF ANNUAL
FINANCIAL STATEMENTS
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Directors and their responsibilities
Risk Management
Internal Audit
Integrated sustainability reporting
Accounting and independent auditing
Compliance and enforcement
Code of ethics (combined with suitable internal controls)
Code of ethics if contravened by an employee –
• Within a business
written warning/dismissal for repeat offence
• Within the profession
disciplinary hearing by professional body
Fine and or deregistration from professional body.
• Illegal or criminal activity
Company or employee – civil/criminal court
Pay damages fine/jail sentence.
INTERNAL AUDIT
• Gathers audit evidence – accounting records
• Designs audit sample to be selected
• Sample transactions are tested through the process to check that expected information is
produced by the accounting system.
• Audit report details any irregularities found and suggests additional controls.
Gathering evidence
• The people in the organisation involved in the steps in the transaction – critical path
• Source documents used in each step – trail of evidence
• Consequential posting to the ledgers
• Other steps to enhance internal control – reconciliation statements
Fixed asset register
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THE INDEPENDENT AUDITOR’S REPORT
The independent auditor’s role is to:
FAIR = Unbiased, not favouring any group of stakeholders
There are three types of independent auditor’s audit report
CONTROLS
Controls are effective as a preventive measure only if the following conditions apply.
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Division of duties
Proper documentation
Proper authorisation
Proper recording and follow-up
GAAP IFRS -
Generally Accepted Accounting Practice
International Financial Reporting Standards
General rules
• Business Entity rule
• Historical Cost rule
• Rule of prudence
• Matching concept
• Concept of materiality
• Going-concern concept
The general rules need to be more specific. The IFRS statements do exactly this and cover many
specific and contentious issues such as depreciation, stock valuation, foreign exchange transactions
etc.
UNQUALIFIED REPORT
Has not identified any concern
relating to the fair presentation
of financial statements. This is
the audit report desired by
shareholders
QUALIFIED REPORT
Identified a concern relating to
the fair presentation of the
financial statements. This will be
disclosed to the shareholders
DISCLAIMER
The financial statements are not
reliable. This is a refusal to
express an opinion. This is a very
undesirable report which will
have further consequences for
the company and directors
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FORMATS – KNOW THESE WELL!
COMPANY FINANCIAL STATEMENTS
NAME OF BUSINESS:
INCOME STATEMENT (STATEMENT OF COMPREHENSIVE INCOME) FOR THE YEAR
ENDED ……………………………………….
Note
Sales
Cost of sales
Gross profit
Other operating income
Gross operating income
Operating expenses
Operating profit
Interest income
Profit before interest expense
Interest expense
Net profit before tax
Income tax
Net profit after tax
NB:
DO NOT PUT ORDINARY SHARE DIVIDENDS INTO THE INCOME STATEMENT AND NO
ASSETS/LIABILITY AMOUNTS...
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NAME OF BUSINESS:
BALANCE SHEET (STATEMENT OF FINANCIAL POSITION) ON ……………………………………
ASSETS
Note
Non-current assets
Fixed/Tangible assets
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Financial assets:
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Fixed Deposit: YY Bank
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Investments: BB Shares
Current assets
Inventory
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Trade and other receivables
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Cash and cash equivalents
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Total assets
EQUITY AND LIABILITIES
Shareholders’ equity
Ordinary share capital
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Retained income
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Non-current liabilities
Loan: XX Bank
Current liabilities
Trade and other payables
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Bank Overdraft
Total equity and liabilities
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
1.
INTEREST INCOME
Interest of Fixed Deposit, Interest on Overdue Debtors accounts, Interest on current,
Interest on Savings.
2.
INTEREST EXPENSE
Interest on Loan, Interest on overdue Creditors accounts, Interest on bank overdraft,
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3.
FIXED/TANGIBLE ASSETS
Land &
buildings
Vehicles
Equipment
Total
Carrying value at beginning of year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value at end of year
Cost
Accumulated depreciation
4.
INVENTORY
Trading stock
Consumable stores on hand
5.
TRADE AND OTHER RECEIVABLES
Net trade debtors
Trade debtors
Provision for bad debts
(
)
Prepaid Expenses
Accrued Income
SARS (Income Tax) (if a debit balance at the end of the year)
6.
CASH AND CASH EQUIVALENTS
Bank
Cash
Petty Cash
Cash Float
Fixed deposit maturing within the next financial year
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7.
ORDINARY SHARE CAPITAL
AUTHORISED
ordinary shares
ISSUED
ordinary shares in issue at beginning of financial year
shares repurchased (average price R
)
(
)
ordinary shares in issue at end of financial year
8.
RETAINED INCOME
Retained income at beginning of year
Net profit after tax for the year
Repurchase of Shares
(
)
Dividends on ordinary shares
(
)
Paid
Recommended
Retained income at end of year
9.
TRADE AND OTHER PAYABLES
Trade creditors
Accrued expenses
Income Received in advance
SARS (Income Tax) (if a credit final balance)
SARS (Paye)
Creditors for salaries/wages
Medical Aid
UIF
Pension Fund
Loan: amount payable within the next financial year
Shareholder for dividend
Most pupils forget about two amounts here – Shareholders for dividend and
SARS (Income tax) - remember these two amounts.
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SPACE FOR NOTES MADE DURING SESSION:
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NAME OF BUSINESS:
CASH FLOW STATEMENT FOR THE YEAR ENDED …………………………………..
Note
Cash flows from operating activities
Cash generation from operations
Interest paid
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Dividends paid
(
)
Tax paid
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(
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(
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Cash flows from investing activities
Purchase of non-current assets
Proceeds of sale of non-current assets
Cash flows from financing activities
Proceeds from issue of share capital
Payment of capital portion of long-term loan
Proceeds from long-term loan
Net change in cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
NOTES TO THE CASH FLOW STATEMENT FOR THE YEAR ENDED ……………………………………
1. Reconciliation between profit before taxation and cash generated from
operations
Profit before tax
Adjustments in respect of:
Depreciation
Interest expense
Operating profit before changes in working capital
Changes in working capital:
Increase/decrease in inventory
Increase/decrease in debtors( Trade and other receivables)
Increase/decrease in creditors (Trade and other payable)
Cash generated from operations
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2.
Cash and cash equivalents
Net change
Fixed Deposit (maturing within 12 months)
Savings account
Bank
Cash Float
Petty Cash
3.
Dividends paid
Amount owing at the end of the previous year
Dividends paid and recommended
Amount owing at the end of the current year
(
)
(
)
Amount paid
4.
Taxation paid
Amount owing at the end of the previous year
Income Statement amount
Amount owing at the end of the current year
Amount paid
Brackets will be opposite if amounts are not owing. They owe us at beginning = ( ) amount at the end
of the year owed to us – no bracket.
NOTE NO 3 AND 4 CAN ALSO BE IN LEDGER FORM – RECOMMENDED
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SPACE FOR NOTES MADE DURING SESSION:
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Alternate:
NAME OF BUSINESS:
BANK RECONCILIATION STATEMENT ON ……………………………………………………
Balance as per bank statement
Outstanding deposits
Outstanding cheques
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Balance as per bank account
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THIS FORMAT HAS ONLY ONE COLUMN. SHOW A NEGATIVE BY MEANS OF A
BRACKET.
NAME OF BUSINESS:
CREDITORS RECONCILIATION STATEMENT ON ……………………………………………………
Debit
Credit
Balance as per BB Statement
xxxx
Invoice wrongly debited
Xxxx
Outstanding cheque
Xxxxx
Balance as per creditors ledger
xxxxx
xxxxxxxxx
xxxxxxxxx
Alternate:
NAME OF BUSINESS:
CREDITORS RECONCILIATION STATEMENT ON ……………………………………………………
Balance as per BB statement
Invoice error (too much)
(
)
Outstanding cheque
Balance as per ledger account
(
)
AGE ANALYSIS
90+ days
60+ days
30+ days
Current
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SPACE FOR NOTES MADE DURING SESSION:
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NAME OF MANUFACTURER:
PRODUCTION
COST
STATEMENT
……………………………………………
FOR
THE
PERIOD
ENDED
Note
Direct / Prime costs
Direct material costs
Direct labour costs
Factory Overheads
Total manufacturing costs
Work-in-process at beginning of the year
Work-in-process at end of the year
(
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(
)
(
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(
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Cost of production of finished goods
INCOME STATEMENT FOR THE PERIOD ENDED ……………………………………..
Note
Sales
Cost of finished goods sold / Cost of sales
Gross profit
Other costs
Selling & distribution costs
Administration costs
Net profit
NOTES TO THE FINANCIAL STATEMENTS
1.
DIRECT MATERIAL COSTS
Opening stock
Purchases (net)
Carriage on Purchases
Customs duty
Closing stock
Direct material cost
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2.
DIRECT LABOUR COSTS
Factory wages
Pension fund contributions
Medical aid Fund contributions
UIF Contributions
DIRECT LABOUR COST
3.
XXXXXXX
FACTORY OVERHEAD COSTS
Factory Maintenance
Factory electricity
Factory rent
Depreciation on factory equipment
Consumable stores *
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*opening stock + bought – left over
Factory overhead costs
4.
xxxxxxxxxxx
SELLING AND DISTRIBUTION COSTS
Rent
Depreciation
Delivery vehicle expenses
Commission to salespersons
Selling and distribution costs
5.
xxxxxxxxxxx
ADMINISTRATION COSTS
Wages
Electricity
Rent
Depreciation
Administration costs
xxxxxxxxxxxx
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. 6 COST OF FINISHED GOODS SOLD / FINISHED GOODS
Opening stock of finished goods
Cost of finished goods produced during the year
Closing stock of finished goods
(
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Cost of finished goods sold / Cost of sales
SPACE FOR NOTES MADE DURING SESSION:
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NAME OF BUSINESS:
CASH BUDGET OF …………………………. FOR THE PERIOD ……………………………………………
RECEIPTS
Total
Cash Sales
Receipts from debtors
Total receipts [A]
PAYMENTS
Cash Purchases
Payment to creditors
Total payments [B]
Cash surplus (shortfall) [A – B]
Bank: opening balance
Bank: closing balance
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Under Cash Receipts = any cash received - sale of fixed asset (note- not the profit) the
actual cash received.
• Under Cash Payments = any cash paid. Equipment bought and paid for. Etc.
Note: Know the difference between Cash Budget and the Projected Income Statement.
Examples: Depreciation will not go to the Cash budget , but will go to Income Statement
Equipment bought and paid for will go to Cash Budget but NOT to Income Statement.
Bad Debts and Discount Allowed and discount received will go to income statement NOT
to Cash Budget.
NAME OF BUSINESS:
DEBTORS COLLECTION SCHEDULE FOR THE PERIOD …………………………………….
Total sales
Cash sales
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Credit sales
Debtors’ collections
Alternate:
NAME OF BUSINESS:
DEBTORS COLLECTION SCHEDULE FOR THE PERIOD …………………………………….
Credit sales
Debtors’ collections
Cash receipts from debtors
Alternate:
NAME OF BUSINESS:
DEBTORS COLLECTION SCHEDULE FOR THE PERIOD …………………………………….
Credit sales
Debtors collections
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NAME OF BUSINESS:
CREDITORS PAYMENT SCHEDULE FOR THE PERIOD …………………………………….
Payments to creditors
NAME OF BUSINESS:
PROJECTED
INCOME
STATEMENT
……………………………………………………….
FOR
THE
PERIOD
Total
Sales
Cost of sales
Gross profit
Other operating income
Gross operating income
Operating expenses
Operating profit/loss
Interest income
Profit/Loss before interest expense
Interest expense
Net profit/loss for the year
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SPACE FOR NOTES MADE DURING SESSION:
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EXAM TIPS
Accounting is s PRACTISE subject - Practise, Practise, Practise, Practise
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Plan a work time table and go through each section. Spend more time on Companies – The mark allocation is the
most in your final paper – do not cram – do not work the night before – make sure you have a good night sleep the
night before.
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Make sure you have all the necessary stationery – take in an extra calculator.
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READ your question carefully – most mistakes are made because pupils have not read the question correctly.
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Show ALL your working – this is very important. The marker cannot allocate marks if your workings are not shown.
If your final answer is wrong you will still get marks.
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Write clearly and neatly
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When answering theory questions do not “waffle” be concise and to the point.
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If you get stuck on one question – move on TIME is of importance. You can come back to the question later.
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Look at your time and mark allocation – stick to the time.
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Try attempt all the questions and maybe start with the sections you know well. This will save valuable time struggling
with a topic that you find difficult
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BE POSITIVE, CONFIDENT AND CALM
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BELIEVE IN YOURSELF
GOOD LUCK FOR YOUR FINAL EXAMS
May each new day bring a feeling
of excitement, joy and a wonderful sense of expectation.
Expect the best and you’ll get it
- Regina Hill
KNOW ALL THESE FORMULAS
No
Ratio Percentage
Formula
1
Gross profit on Cost of Gross profit
x 100
sales
Cost of sales
2
Gross profit on sales
Gross profit
x 100
(turnover)
sales
3
Operating expenses
Operating ex
x 100
on sales
sales
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Operating Income on
Operating inc
x 100
sales
sales
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Net profit after tax on
Net profit after tax
x 100
turnover
sales
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Current Ratio
Current Assets: Current Liabilities
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Acid Test ratio
Current asset- Trading stock : Current Liabilities
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Rate of stock on
Cost of sales
turnover
Average stock
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Stock holding period
Average stock
x 365
(in days)
Cost of sales
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Debtors average
Average debtors
x 365
payment period (in
Credit sales
days)
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Creditors average
Average creditors
x 365
payment period (in
Credit Purchases
days)
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Solvency ratio
Total Assets : Total Liabilities
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Debt/equity ratio
Long-term liabilities : Shareholders equity
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Return on capital
Net profit before tax and interest on loans x 100
employed
Average capital employed
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Return on
Net profit after tax x 100
shareholders’ equity
Average shareholders’ equity
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Earnings per share
Net profit after tax x 100 (cents
Number of issued shares
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Dividends per share
Dividend paid and declared x 100 (cents)
Number of issued shares
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Net asset value per
Ordinary shareholders equity x 100
share
Number of issued shares
Relevant to:
Profitability
Operating efficiency
Profitability
Operating efficiency
Operating efficiency
Profitability
Operating efficiency
Profitability
Operating efficiency
Liquidity
Liquidity
Liquidity
Operating efficiency
Liquidity
Operating efficiency
Liquidity
Operating efficiency
Liquidity
Operating efficiency
Solvency
Risk gearing
Return, gearing
Return to shareholder
Return to shareholder
Return to
shareholders
Share value
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What is “average” = balance at the beginning + balance at the end /2.
Credit Purchases = If not given use the cost of sales amount.
Make sure you know the difference between these two formulas
Return on shareholders’ equity and Return on Capital Employed
Return on shareholders’ equity – compare to other investments
Return on Capital Employed – Look at debt equity ratio and interest on loan
LIQUIDITY –
• Current ratio
• Acid test ratio
• Debtors collection period
• Creditors payment period
• Stock turnover rate
• Stock holding period
A. FIXED/TANGIBLE ASSETS
All assets purchased are recorded in a Fixed Asset Register. Periodically the Fixed Asset Register is
reconciled with a physical count of assets. Internal control and decision around replacing the assets
can also be made at this time.
Control measure
• Log book
• Coded keys
• Signing in and out
• Enclosed garages
• Check list before and after use
• One person to take control – fixed asset manager.
• Regular services
• Disciplinary measured when asset misused
• Clear guideline on use of assets
SPACE FOR NOTES MADE DURING SESSION:
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COMPANIES
THEORY
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ETHICS
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MANUFACTURING
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COVERAGE OF TOPICS – GRADE 12
Issuing of shares at issue price
Buying back of shares
Loans and interest (interest on mortgage loan is capitalized)
Income Tax
Dividends
Directors’ fees
Audit fees
Trading stock deficit/surplus
Consumable stores on hand
Deprecation
Bad debts
Correction of errors/omissions
Accrued income
Income received in advance
Expenses prepaid
Accrued expenses
Provision for bad debts
Adjustments related to income tax
Adjustments related to the payment and declaration of dividends
Statement of Comprehensive Income
Statement of Financial Position
Statement of Cash Flows and notes using the indirect method only
Integrate ethical considerations
Apply GAAP principles and IFRS
Liquidity ratios
Solvency and gearing ratios
Return ratios
Briefly discuss the difference between a company and other forms of ownership with reference to liability,
legal status, documentation required to form a company (MOI) and different kinds of companies
Role of Directors and independent/non-executive directors, auditors and the Audit committee
The difference between an internal auditors report and an external auditors report.
The difference between a qualified and unqualified external auditors report
What is audit evidence and how is audit evidence collected.
The need for Good Corporate Governance, which is based on the principles of good leadership and
sustainability. Leadership principles of accountability, fairness, transparency, and sustainability in term of
financial, society and the environment.
The role of the King Code in ensuring that companies.
*look at and report on the sustainability and triple bottom line: their financial results as well as their
impact on society and the environment.
*the role of directors in ensuring good leadership
Briefly understand the role of professional bodies SAICA and SAIPA.
Discuss briefly disciplinary and punitive measures that can be applied for non-compliance with the Code
of Professional conduct.
Integrate ethical considerations roles of shareholders/directors, manipulation of share prices, corporate
governance, etc.
Understand the legislation governing companies – basic principles in Companies Act, i.e. directors’
performance evaluation, remuneration policies, conflict of interest, and responsibilities of directors.
Define and explain accounting concepts unique to a manufacturing business.
Prepare, present, analyse, interpret and report on cost information for manufacturing enterprises.
Prepare a production cost statement with notes for manufacturing costs
Prepare a short-form Statement of Income with trading statement and profit and loss statement; and
notes for administration cost and selling and distribution cost.
Calculate gross profit on finished goods sold.
Calculate variable and fixed costs. Direct material and labour costs will always be regarded as variable
but in assessment task the percent of fixed and variable amount must be given for manufacturing
overheads, administration and selling and distribution costs.
Calculate the cost of a product using variable and fixed costs.
Calculate the cost per unit. Be careful of using this calculation if there was opening and closing stock of
raw materials, work-in-process or finished goods stock.
Calculate contribution per unit
Calculate total cost of production.
Analyse the production cost statement to identify problem areas and areas where costs may be cut.
Make suggestions to reduce the manufacturing cost for the business.
Integrate ethical issues relating to manufacturing: product quality, product age, raw materials, support
for local products, price-fixing, theft, fraud etc.
Integrate internal audit and control processes relating to manufacturing.
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BUDGETS
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STOCK SYSTEMS
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TANGIBLE ASSETS
VAT
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RECONCILIATIONS
CONTROL
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Complete and analyse a Projected Income Statement
Calculate, from a projected income statement, basic expected ratios;
Complete, Analyse, interpret and compare the cash budgets for sole traders and companies
Complete and analyse Debtors’ collections/schedule
Complete and Analyse Creditors’ payment/schedule
Analyse budget items in a cash budget and forecast income statement so as to:
Identify problem areas
Compare actual vs. budgeted figures
Suggest solutions for problems identified
Integrate internal audit and control processes by comparing budget to actual figures
Ratios relating to liquidity, profitability, solvency, gearing and rerun on capital employed.
Integrate ethical issued relating to budgeting and projections.
Specific identification (of cost price per unit)
Periodic and perpetual stock recording systems. When assessing the periodic system, it must be stated
whether this is used on a monthly or year basis to calculate cost of sales.
First in, first out (FIFO) and Weighted average as methods of valuing stock.
When using weighted averages and the perpetual stock recording system, the value of stock changes
every time new stock is bought.
Integrate IFRS/GAAP principles and
Ethical issues integrate internal audit and control processes relating to inventories
Ratios relating to stock
Controls relating to stock/ethics
Complete and analyse the tangible asset note.
Interpret and report on the movement of fixed assets (age of assets replacement rate and lifespan of
assets
Integrate IFRS/GAAP principles relating to fixed assets.
Integrate ethical issues relating to fixed assets
Integrate internal audit and control processes relating fixed assets
Ratios related to borrowing of money to buy fixed assets
Completing and analysing a tangible asset note or asset register
Calculate the amount payable to or receivable from the SARS. Complete of the VAT control ledger account
from given information.
Debtors allowances, discount allowed and discount cancelled on r/d cheques and bad debts will be offset
against output VAT.
Creditors allowances, discount received will be offset against input VAT
VAT on drawings and donations will be offset against input VAT
VAT on disposal of assets
Understand the concept of VAT returns and the standard procedure to calculate VAT for two-month
period, to be paid on the 25th of the third month.
Understand the difference between the invoice basis and cash basis for calculating VAT
Integrate ethical issues relating to VAT
Integrate internal audit and control processes.
Analyse and interpret bank, debtors’ and creditors’ reconciliations:
Reconcile creditors’ statements with their personal accounts
Reconcile debtors lists and creditors lists with control accounts
Analyse and interpret debtors’ age analysis
Analyse and interpret bank statements and bank reconciliation statements.
Integrate ethical issues relating to cash, debtors and creditors: payment period, interest, credit rating,
fraud etc.
Integrate internal audit and internal control issued relating to cash, debtors and creditors
Identify and explain different types of accounting controls e.g. numbered source documents, electronic
devised that limit the entry into specific areas
Identify a need for a control
Identify a viable control in a particular situation
Identify when an existing control is not working.
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FINANCIAL INDICATORS
1.
2.
3.
4.
5.
RATIO
GP on Cost of sales
GP on Turnover
Total Expenses on Turnover
Operating profit on turnover
Net profit after Tax on Turnover
PURPOSE
Determine the level of profitability and operating efficiency of
the business (How profitable is the business)
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Verify the mark-up (Business policy on Gross Profit on
Sales)
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Check on control over expenses.
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Check on control over stock/inventory (Applicable to
periodic inventory system)
PROFITABILITY RATIOS/PERCENTAGES
RATIO
COMMENTS
1. Gross profit on Cost of Sales
Periodic Inventory System
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Verify mark-up
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Compare with the previous year and determine the extent of
Gross profit
x 100
the drop in percentage.
If the business uses the Periodic Inventory System and a Fixed
Cost of sales
Mark-up and the % mark-up is lower than as per policy, then the drop
in mark-up can be attributed to the following:
Answer = x %
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Trade discounts were offered to bulk buyers
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Stock was discounted during a stock clearance sale
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Errors in calculating mark-up
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Theft of stock
If the business used a variable mark-up, the result would be an
average mark-up of the previous year to see if there is an improvement
or decline in the mark-up
Continuous Inventory System(Perpetual)
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Verify mark-up
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Compare with the previous year and determine the extent of
the drop in percentage.
If the business uses the Perpetual/Continuous Inventory System and a
Fixed Mark-up and the 5 mark-up is lower than as per policy, then the
drop in mark-up cannot be attributed to theft of stock. It can be
attributed to the following:
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Trade discounts were offered to bulk buyers
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Stock was discounted during a stock clearance sale
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Errors in calculating mark-up
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Theft of stock is not applicable.
2.
Gross Profit on Turnover
Gross profit x 100
Turnover
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Check on GP Policy on Turnover to see if it is maintained
For very R1 of sales, x % was the gross profit
Compare with the previous year
A drop in % could be attributed to the same reasons as in
the case of a drop in Gross profit on Cost of Sales
Answer = x %
THE EFFECT OF TRADING STOCK ON GROSS PROFIT
Note: The business uses a fixed mark-up of 100 % on cost
TRADING STATEMENT
EXAMPLE 1
Opening stock
100 000
Purchases
450 000
Carriage of purchases
25 000
Customs duty
15 000
Import duties
10 000
TOTAL VALUE OF GOODS AVAILABLE FOR SALE
600 000
closing stock
(150000)
Cost of sales
450 000
Gross Profit
450 000
Sales
900 000
Gross Profit on Cost of Sales
100 %
EXAMPLE 2
100 000
450 000
25 000
15 000
10 000
600 000
(90 000)
510 000
390 000
900 000
76,5 %
STOCK CONTROL
Periodic Inventory System
Continuous Inventory System
Fixed Mark-up
Take physical stock and compare it with the balance on the
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Fixed mark-up will assist in monitoring stock
Trading Stock account to establish stock shortages
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Calculation of GP on COS must indicate
whether the mark-up is maintained
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If the mark-up is lower it indicates there are
stock shortages
Variable Mark-up
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Stock shortages would be by comparing the
average ark-up with the previous year
Other reasons for a drop in mark-up:
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Goods were discounted during a period of
sales
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Goods were discount to promote bulk sales
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Total Expenses on Turnover(sales)
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Total expenses x 100
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Turnover
4.
Net Income after Tax on Turnover
Net Income after tax x 100
Turnover
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This shows what portion of the GP on Turnover is
used for Operating expenses.
Compare result with the previous year to see if the %
is a lower (improvement in control over expenses) or
if the % is higher (poor control over expenses)
Identify specific expenses that need to be curbed
Guard against decreasing salaries and wages to
improve control over expenses. (Note that
macroeconomics is not only about making a profit but
it is also a social responsibility insofar as creating jobs
is concerned.
Advertising expenditure seen in relation to sales.
If the drop in % from GP on turnover to Net profit
after Tax on turnover is very high, then the focus
must be on curbing expense including interest
expense since the cost of financing will have an effect
on the ratio (see 3 above)
Compare result with the previous year to assess
whether there is an improvement or deterioration in
the control over expense
RATIOS
PURPOSE
To assess whether the business can pay off its immediate
debts/its short-term obligations
1. Current Ratio
Make comparisons with the results of the previous year and
2. Acid Test Ratio
comment on:
3. Rate of stock Turnover
•
The cause and level of improvement OR deterioration
4. Period for which enough Stock is on
Points to consider when calculating ratios:
hand
•
When calculating a ratio, the left side of the ratio
5. Debtors Average Collection Period
must be divided by the right hand side of the ratio.
6. Creditors’ Average Payment period
Therefore, the right hand side of the ratio will always
be equated to 1 i.e. the result would read x: 1
•
When calculating the Rate of Stock
•
Turnover, the result would read “x times per year’
•
(refer to4, 5 and 6 below)
It is highly recommended that a period is calculated
in days and not in months, it is easier to comment of
the exact number of days than on a fraction of a
month. Therefore, in the calculation multiply by
365 days to arrive at an answer in days.
Liquidity Ratios
RATIO
COMMENTS
1. Current Ratio
•
How much of current assets does the business have
for every R1 of current liability?
Current Assets
:
Current Liabilities
•
Is the business liquid?
Inventories
Payables
•
How does the result compare with the previous year?
Receivables
Bank overdraft
•
Will the business be able to pay its short-term debts?
Cash
•
What can a higher ratio be attributed to?
•
High stock levels
•
Obsolete stock
•
Inventory is valued at prices higher that than the
realistic value
•
Increase in debtors through credit sales
•
Increase in cash through loans
•
What can a lower ratio be attributed to:
•
Decrease in any of the current assets
Or
•
Increase in any of the current liabilities
2. Acid Test Ratio
The acid Test Ratio is calculated to:
•
Assess the ability of the business to pay off its shortterm debts without having to sell its stock (inventory)
Current Assets – Inventories: Current Liabilities
•
How much of current assets excluding stock does
the business have for every R1 of current liability?
Receivables
Payables
•
Why is stock excluded?
Cash
Bank overdraft
B. Liquidity Ratios
27
Obsolete stock cannot be converted to cash
quickly
Ø Stock may be over priced and cannot be sold
quickly
Ø Generally, stock cannot be converted to cash
quickly
Ø To determine the extent to which the business has
invested in stock.
How will this be determined?
By examining the drop between the Current Ratio and
the Acid Test Ratio
Other factors that can affect the ratio:
Ø Cash invested in Fixed Deposits
Ø Debtors are taking too long to pay
Ø Creditors are being paid too soon.
How does the result compare with the previous year?
Will the business be able to pay its short-term debts?
Ø
3.
Rate of Stock Turnover
Cost of sales
Average stock
Answer = x times per year
4.
Period for which enough stock on hand
Average stock x 365
Cost of sales
Answer – x days
5.
The Rate of Stock Turnover is calculated to check the liquidity
and operating efficiency of the business by determining the
number of time stock is replaced in a year.
Ø A high stock turnover rate is advantageous and would
result in:
•
Increased sales (Turnover)
•
Increased cash sales would improve cash
flow (Money is available more quickly)
•
Increase in turnover would lead to profits
being realized more quickly
Ø A lower stock turnover rate could be as a result of:
•
Stockpiling due to ageing, poor quality or
changes in fashion
•
Wrong purchases
•
Wrong purchase policy
(When must stock be replaced)
•
Poor sales
•
Economic circumstances
Consequences of stock piling:
•
Incur costs for storage (rent etc.) Profits decrease
•
Cash is tied to stock that cannot be sold easily
because it is outdated. Affects liquidity
How does this result compare with the previous year?
The period for which enough Stock is on Hand is calculated to
help the business in planning and replenishing stock. This
process involves:
•
Adhering to the purchasing policies
•
Timeous placing of orders
•
Checking up on availability of stock
If the period is long it indicates that more working capital is tied
up in stock
(Working Capital = Current Assess- Current Liabilities)
It must be noted that the type of business will also influence
the period e.g.
•
Clothing may be replaced seasonally. Approximately
four time a year
•
Groceries and other food items may be replaced more
rapidly that is, daily or weekly
How does this result compare with the previous year?
Debtors’ average collection period
Average Debtors x 365
Credit Sales
Answer = X days
The debtors’ collection period is calculated to determine
whether debtors are complying with the credit terms policy.
If the collection period exceeds the terms for collection in the
policy, it means that the credit terms policy is not efficient and
the consequences are as follow:
•
The business would not have sufficient cash to meet
its financial obligations for e.g. payment to creditors,
paying salaries and other operating expenses.
•
The business would have to borrow as a result cash
flow constraints and would have to pay interest on
overdraft.
28
•
Compare the result with the previous year and if the
payment has worsened, it means that there is a
regression in credit regulation.
If the collection period complies with the credit terms policy or
it is shorter than the terms for collection it means that:
•
•
•
Offer settlement discounts
Charge interest on overdue accounts
Regular communication with debtors to settle their
account. Communicate by:
•
Sending out monthly statements
•
Following-up telephonically or by SMS
•
Escalating the account to senior credit controller if
payment is not forthcoming.
N.B. The Debtors ’Collection period must be shorter that the
Creditors’ Payment Period
6.
Creditors’ Average Payment period
Important:
How does this result compare with the credit terms policy?
How does this result compare with the previous year?
The creditors’ payment period is calculated to determine the
following:
Average Creditors x 365
Credit Purchases
•
Answer = x Days
•
Ø
Ø
Ø
Whether there is compliance with the credit terms
facilities arranged with creditors
Whether it is in keeping with the internal payment
policy of the business so that:
Settlement discounts are received
Interest is not charged on overdue accounts
Supplies are not halted due to late payment
A longer period of payment is always better because
Ø
Ø
RATIO
C
Solvency
(refers to Shareholders’ Equity)
It does not create financial constraints on the
business
Surplus cash could be invested and interest could be
earned on it (Money Market account, 32-day call
account etc.)
PURPOSE
This ratio tests the credit worthiness of the business and
indicates whether the business can meet all its commitments.
Solvency can be calculated as a ratio or as an
amount
Ratio = Total Assets: Total Liabilities
Amount = Total Assets – Total Liabilities =
Shareholders’ Equity
Ratio
Solvency
Total Assets : Total Liabilities
RATIO
D
Gearing
Solvency Ratios
Comment
PURPOSE
This ratio is calculated to assess the extent to which the
business is financed through loans as against won capital raised
through the sale of shares. Hence, it indicates the degree of
financial risk of the business.
Note
Ø Loans are subject to a finance cost viz. Interest on
loan (Risk)
Ø Share capital is not subject to a cost
This shows the ratio between:
Borrowed Capital and Own Capital
(Non-current Liabilities)
(Shareholders’ Equity)
Ø Loans
Ø Share Capital
Ø Retained Income
29
Ratio
Debt to Equity ratio
Borrowed Capital
: Own Capital
(Non-Current Liabilities)
(Shareholders’ Equity)
Ø Loans
Ø Share Capital
Ø Retained Income
Important:
Use this ratio to comment on loans
RATIOS
E
Return
IMPORTANT:
Use this ratio to comment on Loans
Gering Ratios/Percentages
Comment
This ratio tests the credit worthiness of the business and
indicates the extent to which the business is geared (financed)
by loans
Credit providers are the interested parties:
Ø Banks
Ø Creditors
High Gearing
Ø High risk (disadvantageous)
Ø Loans are high
Ø Costly – interest has to be paid
Low Gearing
Ø Low risk (advantageous)
Ø Regarded as creditworthy by banks
Improvement in the ratio can be attributed to:
•
Increase in the number of shares issued
•
Decrease in loans through partial repayments
How does the ratio compare with the previous year?
PURPOSE
These ratios test the efficiency of the investment in the
company.
1.
Return on average Shareholders’ Equity
(ROSHE)
Comparisons against other forms of investments are crucial
2. Return on Total Capital Employed
(ROTCE)
The information derived from these percentages assist the
3. Earnings per share (EPS)
directors and shareholders in decision making insofar as the
4. Dividends per share (DPS)
investment in the company is concerned.
5. Net Asset value per Share (NAV)
Return Ration/Percentages
Ratio/Percentage
Comment
1.
Return on Shareholders’ Equity (ROSHE) This calculation is done to ascertain the Return on Shareholder’
Equity.
(Investment in the Company)
Net income after Tax x 100
•
Check the profit on investment
Average Shareholders’ equity
•
Compare the result against the return on alternative
investments
Answer = X %
•
Compare the result against the previous year
2. Return on Total Capital Employed
This ratio indicates whether the business has a return on capital
(ROTCE)
employed that is higher or lower than the percentage paid on
loans
Important:
Use this ratio to comment on loans
Net Profit before Tax + Interest x 100
Consider the following:
Average Capital Employed
Positive Gearing; (Favourable)
•
Applies when funds are borrowed at a relatively low
Answer = X %
interest rate in order to earn relative higher returns
Negative Gearing: (Unfavourable)
Capital employed =
•
Applied when funds are borrowed at a relatively
higher interest rate and the difference between return
Shareholders’ Equity + Non-current Liabilities
earned on Capital Employed by utilizing borrowed
funds is relatively narrowed down
•
Example:
Interest on loan=15 % compared against the ROTCE
of 22%
•
Applies when interest rates on loans are equal to or
relatively higher than the return earned by the
company Employed
How does the result compare with the previous year?
3.
Earnings per share (EPS)
Net income after Tax x 100
No of shares issued
Answer = X cents per share
Calculation as a percentage
This ratio refers to the return the company earned per share
More specifically, it means that this is the amount that the
company earned for every share invested in the company. This
does not mean that the shareholder received this amount per
share.
•
Because a portion of the earning is Retained for
further expansion or unforeseen circumstances
30
•
Shareholders do not receive the immediate benefit,
that is the total benefit of the earning
•
This calculation is used by shareholders to gauge the
earning per share in relation to the market price of
the share for investment purposes.
How does the result compare with the previous year?
EPS
x 100
Price per Share
Answer = X %
4.
Dividends per Share (DPS)
Total Dividends for the year x 100
No of Shares issued
Answer – x cents per share
Note:
Total dividends = Dividend paid (Interim) +
Recommended (final) for the year.
This ratio indicates that portion of the total earnings of the
company that the shareholders received.
The shareholder must compare their earning in the form
of dividends with:
•
The results of the previous year
•
Alternative investments (% earned)
Note:
The difference between Earnings per share and Dividends
per share is Retained Income
EPS -DPS= Retained Income
How does the result compare with the previous year
Calculation as a percentage
DPS
x100
Price Per Share
Answer = X %
5.
Net Asset Value per Share (NAV)
Ordinary Shareholders equity
No of shares issued
x 100
Answer = X cents per share
Note:
Assets = Shareholders’ Equity + Liability
Shareholders’’ Equity = Assets – Liability
Current curriculum stipulates FOUR values to shares:
•
•
•
Issue price
Average price
Market Price = The price at which the share is trading
on the Securities Exchange
•
Net asset value = This ratio indicates the value of the
share according to the accounts and financial
statements of the company, that is according to the
books of the company.
How does the result compare with previous year?
How does the result compare with the other values?
Hence,
Net Assets = Shareholders’’ Equity
GOOD LUCK FOR YOUR FINAL EXAMS
IF YOU WANT THE PAST PAPERS FOR
GDE AND IEB YOU MAY EMAIL ME
AT
aharmse@crawfordschools.co.za
31
GRADE 12
ACCOUNTING
REVISION
OCTOBER 2018
QUESTION BOOKLET
A
B
C
D
E
F
ASSET MANAGEMENT
RECONCILIATION AND AGE ANALYSIS
VAT
MANUFACTURING ACCOUNTS
CASH BUDGETS
ANALYSIS AND INTERPRETATION
1
A - ASSET MANAGEMENT
QUESTION 1
Posh Traders is a registered VAT vendor and uses the invoice basis to record VAT transactions. The
business submits a VAT return on a bi-monthly basis, i.e. January, March, May, July, September and
November. Posh Traders only buys supplies from other registered VAT vendors. VAT is charged at
14%.
Summary of the transactions effecting vehicles for the period 1 July 2014 to
30 June 2015:
1.
On 1 July 2014 Posh Traders had the following vehicles:
•
Two delivery vehicles purchased on 1 October 2012 at R285 000 each (including
VAT).
2.
Depreciation on vehicles is calculated at 20% per annum on the diminishing balance
method. The accumulated depreciation on the two vehicles amounted to R160 000 on 30
June 2014, the last day of the previous financial year.
3.
One of the vehicles was written off in an accident on 31 March 2015. The insurance
company, BFix, agreed to pay out R159 600 (including VAT) on 1 June 2015.
4.
Posh Traders replaced the delivery vehicle written off with a new delivery vehicle
purchased on 1 June 2015 from Motor City for R360 000 (excluding VAT).
ANALYSIS AND INTEPRETATION OF THE ASSET REGISTER
QUESTION 2
BLACK AND WHITE TRANSPORT
Use the information given in the Asset Register to answer the questions.
TANGIBLE ASSET REGISTER
ASSET: Vehicles
MAKE: Toyota
DATE PURCHASED: 1 March 2013
REGISTRATION: GHE 345 94T
DEPRECIATION: 25 % ………?
DATE SOLD: ……………..?
SELLING PRICE: R1000 000
PROFIT/LOSS …………….?
DATE
28 Feb 2014
28 Feb 2015
31 Oct 2015
DEPRECIATION
550 000
412 500
206 250
ACCUMULATED
DEPRCIATION
550 000
962 500
1 168 750
BOOK VALUE
1 650 000
1 237 500
1 031 250
2
QUESTION 3
PART B
TANGIBLE ASSET ANALYSIS (24 marks)
The following Tangible asset note was found in the Statement of financial position of Xceleron
Dealers on 28 February 2017.
VEHICLES
MACHINERY
R
R
Carrying value at the beginning of the year
580 450
28 800
Cost
960 000
240 000
Accumulated depreciation
(379 550)
(211 200)
MOVEMENTS DURING THE YEAR
Additions
540 000
Disposals
(a)
–
Depreciation for the year
(b)
(64 799)
Carrying value at the end of the year
Do not calculate
504 001
Cost
Do not calculate
780 000
Accumulated depreciation
(c)
Additional information:
1.
Depreciation is written off on Machinery at 20% p.a. using the fixed instalment method.
Depreciation for the year on the old machinery amounted to R28 799.
2.
Depreciation is written off on Vehicles at 25% p.a. using the diminishing balance method.
3.
On 1 November 2016 an old vehicle, originally bought on 1 July 2014 for R450 000, was
traded-in for R222 000 and a new vehicle costing R675 000 was purchased. The accumulated
depreciation on the old vehicle sold was R168 750 on 1 March 2016.
3
RECONCILIATIONS – CONTROLS AND AGE ANALYSIS
B
Managing Debtors
What is a Credit Policy?
•
Credit offered effectively so as to be profitable for the business.
•
Must include:
Ø Criteria for credit approval
Ø Credit limits
Ø Terms
Ø Discounts.
Control is therefore very important because if we do not manage our debtors effectively this can have a negative impact of our
cash flow.
What can we do to encourage our debtors to pay us on time according to our credit policy?
•
Use of settlement discounts
•
Interest may be charged on overdue accounts
•
Active management of overdue accounts by contacting the debtor directly, either with letters, emails or phone calls.
As part of internal control, it is necessary the bookkeeper draws up an age analysis of their debtors and creditors on a regular
basis.
•
Able to determine at a glance, whether the debtor are paying their accounts in the stipulated period or are taking
longer periods to pay.
•
Essential to know that credit term debtors are allowed.
•
Age analysis is therefore a historical document – drawn up to show what the debtors owe for purchase in the past.
•
Payments are made against the OLDEST BALANCE FIRST.
QUESTION 1
Gayle Lee, owner of Lee Stores has provided you with information relating to her business. She has
asked for your advice on some issues. The financial year ends in February. David Hersch was
appointed as new credit controller on 1 March 2015.
INFORMATION
Credit limits and credit policy of the business
•
•
•
•
•
Debtors are granted limits of R30 000 each.
Debtors have to settle their accounts 60 days after the date of purchase
Accounts settled in the same month as the date of purchase are subject to 2 % discount.
If a debtor does not settle with 120 days, the account is written off as bad debts.
Interest at 18 % p.a. is charged if debtors do not pay within 90 days.
LEE STORES
Debtors Age analysis on 28 February 2016.
DEBTOR
TOTAL
CURRENT
30 – 60 DAYS
B Brown
30 000
30 000
P Pink
62 000
24 000
8 000
Y Yellow
18 200
O Orange
23 200
18 400
4 800
R Red
33 600
15 600
11 000
167 000
88 000
23 800
2016
Feb
1
Balance
28
Sales
Bank (R/D)
Journal debits
(Discount
cancelled)
1
Balance
60 – 90 DAYS
90 DAYS +
4 000
18 200
26 000
7 000
29 200
DEBTORS CONTROL ACCOUNT
173 000
2016
28 Bank and discount all
Feb
DJ
105 000
Debtors All
CPJ
19 400
Journal Credits(bad
debts)
GJ
1 600
Balance
b/d
b/d
299 000
167 000
26 000
CRJ
122 000
DAJ
GJ
6 000
4 000
C/D
167 000
299 000
4
QUESTION 2
INFORMATION RELATING TO Foxtrot Traders Limited:
The following information relates to Foxtrot Traders Limited for the year ended 31 March 2015.
1. It is company policy to allow debtors 30 days credit.
2.
Sales and collections for the year ended 31 March 2015:
• Total sales for the year, R1 260 000.
• 25% of sales are for cash, the remainder are on credit.
3.
Debtors’ age analysis on 31 March 2015:
(March)
(February)
(January)
(December)
Current
R
30 days
R
60 days
R
90 days
R
Debtor
Credit
limit
R
Total due
R
F. Laing
24 000
22 500
22 500
G. Coetzee
45 000
46 500
18 000
A. Coulson
45 000
13 650
J. Tuko
45 000
17 400
13 800
3 600
T. Wilson
45 000
24 750
11 250
8 250
5 250
124 800
65 550
17 850
15 900
4.
3 000
19 500
7 650
6 000
25 500
Debtor T. Wilson’s account as it appears in the debtors’ ledger of Foxtrot Traders Limited
for the period 1 January 2015 to 31 March 2015:
DATE
DETAILS
FOL
Jan
28
Invoice 487
DJ
Feb
1
Credit note 254
DAJ
4
Invoice 535
DJ
6
Receipt 380
CRJ
2
Invoice 629
DJ
3
Receipt 484
CRJ
Mar
6 000
DEBIT
CREDIT
BALANCE
5 250
5 250
750
18 000
4 500
22 500
9 000
15 750
13 500
29 250
4 500
24 750
5
BANK RECONCILIATION AND INTERNAL CONTROL
CONTROLS RELATING TO RECONCILIATIONS
Bank reconciliation and creditor’s reconciliation
•
Comparison of a statement received from an external source to records of a business, is a significant aspect of
applying internal control in the business.
•
External information provides proof that the information recorded in the books of a business is correct.
•
Valid – the internal auditor or independent auditor can be reasonably assured that the books of the business are
reliable.
Debtors and Creditors Reconciliations – control account with the list of debtors or creditors.
•
Internal auditors can reasonably be assured that the internal control is good if these agree.
Analysis of the information relating to an asset.
e.g., – Debtors Age Analysis – unethical behaviour and breaches of internal control can often be picked up from information,
which does not fit the “norm” of the expected behaviour.
NB
FAVOURABLE BANK STATEMENT BALANCE = CREDIT BALANCE
FAVOURABLE BANK ACCOUNT BALANCE = DEBIT BALANCE
QUESTION 3
Study the Bank Reconciliation Statement and answer the questions that follow.
INFORMATION
Bank Reconciliation Statement of Pieterse Materials on 28 February 2015.
Favourable balance according to the bank statement
8 000
Outstanding deposits
3 000
Outstanding cheques
No 840 (dated 5 September 2014)
2 200
No 1052 (dated 18 February 2015)
5 600
No 1065 (dated 15 March 2015)
4 300
Balance according Bank account
?
QUESTION 4
RECONCILIATIONS
(29 marks, 35 minutes)
The information below belongs to Tub's Groceries, a store that sells everything edible from cereal, meat,
fresh fruit and vegetables to sweets and chocolates. Tub's Groceries banks at Gold Bank Ltd and is
owned by Tubby Edwards. Their year-end is on 31 December.
Below is the November 2016 bank reconciliation statement that was drawn up by an inexperienced
bookkeeper:
Bank reconciliation statement on 30 November 2016
Debit balance as per bank statement
Outstanding deposit
Outstanding cheques No. 577 (18 April 2016)
No. 823 (31 July 2016)
No. 1033 (28 November 2016)
No. 1035 (20 January 2017)
Balance as per bank account
11 350
33 000
7 800
600
5 000
750
?
Additional information relating to the bank reconciliation statement
• Cheque 823 was posted to Claws Alive, an animal shelter. The shelter closed down on 30 June
due to lack of funding.
• Cheque 1033 was sent to a supplier, The Cereal Factory.
• Cheque 1035 was sent with a friend to Tubby's sister who is living in Canada. He dated the cheque
for her birthday in January.
6
The Cereal Factory
Statement of account
Tub's Groceries
Waterway Flats
Lakeside Way
Date
August
15
September 28
29
October
3
November
10
12
19
28
Acc no: 78
30 November 2016
Details / Document no
Invoice T57
Invoice T89
Credit note C40
Receipt 895
Invoice T108
Credit note C47
Invoice T120
Receipt 1055
Debit
Credit
7 500
8 300
2 100
7 300
5 600
1 400
11 250
5 000
Current
30 days
60 days
?
?
?
TERMS: 30 days after date of statement
5% discount if paid within 10 working days of date of invoice
Balance
7 500
15 800
13 700
6 400
12 000
10 600
21 850
16 850
90 days
?
Additional information relating to the creditor's statement above:
• Invoice T108 was entered incorrectly on the statement. It was actually for R6 500.
• Invoice T120 was issued to Tub Furniture Store.
• Tub's Groceries paid R2 000 via EFT into the account of The Cereal Factory on 30 November.
7
C – VAT
VAT CALCULATIONS
Calculating the price inclusive of vat
Price (incl. Vat) = Price (excl. Vat) x 114/100 or (x1.14)
Calculating the amount of VAT included in the VAT – inclusive amount
VAT = Price (incl. VAT) x 14/114
Calculating the price exclusive of VAT
Price (excl. Vat) = Price (incl. VAT) x 100/114 (or /1, 14)
SUMMARY
Effect on VAT payable to SARS
INCREASES
DECREASES
TRANSACTION
•
•
•
•
•
Sales of goods
Services rendered
Other Income *
Sale of fixed assets
Bad Debts recovered
√
Vat adjustments
•
•
•
Bad debts
Discount allowed
Goods returned by a customer
•
•
•
•
•
Purchase of goods
Expense items **
Purchases of fixed assets
Purchases of consumable stores
Petty Cash Payments***
√
√
Vat Adjustments
•
•
•
•
Discount received
Goods returned to supplier (credit Allowances)
Drawing of stock
Dishonoured cheques ( reversal of discount allowed)
√
*Excludes interest income
** Excludes salaries and wages, fuel expenses and property taxes, interest expense
***Exclude staff refreshments
QUESTION 1
VAT
(15 marks; 9 minutes)
Kelfit Sport supplies various sporting equipment to gyms and sports retailers. The following information
applies to the business:
•
•
•
Kelfit is a registered VAT vendor, and charges VAT at 14%. They use the invoice basis
to record VAT transactions.
The gyms and sports retailers they supply are all registered VAT vendors.
The business submits a VAT return bi-monthly, i.e. February, April, June, August,
October and December.
Information:
Transactions and information relating to April 2017:
8
1. Balances on 1 April 20171.1 VAT Output Account, R5 540
1.2 VAT Input Account, R3 200
2. Total credit sales for April amounted to R2 120 400 (VAT inclusive).
3. Debtors paid R22 800 in full settlement of their debts of R25 308.
4. The owner took trading stock with a cost price of R3 900 (VAT exclusive) for his own personal
use.
5. Cash purchases for April 2017 amounted to R1 230 000 (VAT exclusive). Included in this
amount are purchases of R240 000 VAT exempt items.
6. Bad debts written off during April amounted to R2 394 (VAT inclusive).
7. Debit note 57 was sent to Sports Zone, a supplier, together with the defective stock. The VAT
portion of this return amounted to R78.
8. Settled the amount owing to Sports zone, a supplier, with a cheque for R3 158 and received a
discount of R342.
9. The bank returned, debtor, D. Donna’s cheque for R1 216 marked – Insufficient Funds. This
cheque was received for the settlement of his account of R1 387.
QUESTION 2
VAT
(20 marks, 15 minutes)
Information relating to All Sports Traders
On 1 January 2018, Gareth Lee began trading as All Sports Traders supplying various sporting
equipment to gyms, schools and sporting retailers. The business uses a mark-up of 75% on cost at all
times.
The gyms and sporting retailers that All Sports Traders supplies are all registered VAT vendors. VAT is
charged at 14%.
All Sports Traders is registered for VAT and uses the invoice basis to record its VAT transactions. The
business submits a VAT return bi-monthly, i.e. February, April, June, August, October and December.
Transactions and information relating to June 2018
2.1.1
Balances as at 1st June 2018
VAT Output Account
R11 120
VAT Input Account
R6 420
2.1.2
Gareth took sports equipment for his personal use. The VAT on this amounted to R912.
2.1.3
Invoice X35 reflected the following purchases:
Trading Stock
R17 566 (inclusive)
Stationery
R6 840 (inclusive)
2.1.4
D/N 57 was sent to Sport's Holdings Ltd, a supplier, together with the defective stock. The VAT
portion of this return amounted to R156.
2.1.5
Settled the amount owing to Sport's Holdings Ltd, a supplier, with a cheque for R6 316 and
received a discount of R684. The VAT portion amounted to R84.
2.1.6
Trading Stock with a cost price of R38 400 (excl) was sold for cash.
9
2.1.7
The bank returned debtor P. Astel's cheque for R2 432 marked R/D – insufficient funds. This
cheque had been received in May in settlement of his account of R2 774.
2.1.8
All Sports Traders sold trading stock to Harvey Gym in May 2018. The tax invoice reflected VAT
on the sale as R684; however, it was posted to the ledger as R864.
2.1.9
Disposed of a second-hand vehicle at a loss of R6 000 on the 30th June 2018. The book value
of the vehicle as at the date of sale was R74 000. The depreciation on this vehicle had been
recorded up to 30th June 2018. VAT input was claimed when the vehicle was originally bought.
D – MANUFACTRUING COSTS
PRIME COSTS
= Direct Raw Material + Direct Labour
FACTORY OVERHEADS
= Indirect labour costs
Indirect material costs (consumable stores)
Factory rent
Factory water and electricity
Depreciation on factory equipment
TOTAL MANUFACTURING COSTS = Prime Costs + Factory Overheads.
BREAK-EVEN ANALYSIS
Step 1
Step 2
Step 3
Determine the total fixed costs and variable cost per unit
Calculate the contribution per unit = this is the difference between the selling price
per unit and the variable cost per unit
Divide the total fixed cost by the contribution per unit.
QUESTION 1
MANUFACTURING
(50 marks; 30 minutes)
ZUKA Manufacturers is owned by Jonathan Zuka. The business manufactures one style of jacket
and the financial year ends on 28 February 2018.
Information:
A.
PRODUCTION
Number of jackets produced last year
Number of jackets produced this year
B.
4 500 units
4 000 units
RAW MATERIALS
1. Usage
Jonathan has done a study of the manufacturing process and has found that it should take
1, 8 metres of fabric to make one jacket.
2. Stocks of raw materials on hand were:
Number of metres of
fabric
700 metres
9 100 metres
Opening Stock
Raw materials issued to the factory for
the production of jackets
Closing Stock
4 300 metres
3. Purchases of raw materials during the year were as follows:
Purchases
April 2017
May 2017
February 2018
Number of metres of
fabric
12 800 metres
7 000 metres
3 600 metres
2 200 metres
Cost per
metre
R34
R42
R48
Cost per metre
R30
?
?
Total cost
R494 800
R238 000
R151 200
R105 600
10
4. Return of raw materials during the year were as follows:
C.
Number of metres of
fabric
100
May 2017
EMPLOYEES
1.
Total cost
?
Jonathan employs the following individuals:
Details
Number of
Employees
Basic monthly
salary/wage
per employee
Total annual cost
of employment
including benefits
5
R5 000
?
1
R8 000
R106 560
180 hours for
each worker
-
1
R4 000
?
-
Employees in the
production process
Factory Foreman
Salesman
2.
Cost per
metre
R42
Overtime
Hours
Rate
R70
-
Employment benefits and overtime
• Employment benefits are allocated to the cost account applicable to the salaries/wages
of the specific employees.
• All employees are registered with the business’ pension fund and the UIF. Deductions
are made from the basic salary for the pension fund (8%) and the UIF (1%). The
employer contributes 10% towards the pension fund and 1% to UIF.
• Overtime and commissions are not subject to pension fund and UIF deductions or
contributions.
• The five workers who make the jackets each worked 180 hours of overtime during the
year at a rate of R70 per hour.
D.
Stocks of finished goods on hand were:
Opening stock
Closing stock
E.
Number of jackets
110
420
Value per unit
R284
?
Analysis of total costs and unit costs:
2018
Total
?
2018
Per unit
R350
2017
Per unit
R350
Variable Costs:
Direct Material cost
Direct Labour cost
Selling and Distribution cost
R863 800
?
?
R150 000
R215,95
?
?
R37,50
R184,60
R63,30
R82,20
R39,10
Fixed Costs:
Factory overhead cost
Administration cost
R350 200
?
R80 000
R87,55
R67,55
R20,00
R83,54
R58,04
R25,50
Selling Price
11
QUESTION 2 – Manufacturing
2.1
3.
[39 marks; 24 minutes]
PRODUCTION COST STATEMENT
You are provided with information relating to Mountain View Manufacturers for the financial
year ended 30 June 2016. The business produces sports bags and sells them at a mark-up of
40% on cost.
REQUIRED
2.1.1
Complete the note for Factory Overhead Costs.
2.1.2
Prepare the Production Cost Statement for the year ended 30 June 2016. Where
notes are not required, provide workings in brackets.
INFORMATION
1.
Stock balances
30 June 2016
30 June 2015
Raw material stock
56 700
42 400
Work-in-progress stock
33 000
43 300
2.
Transactions during the year
Raw materials purchased (cash and credit)
1 182 500
Cost of transporting raw materials to the factory
24 100
Unsatisfactory raw materials returned to suppliers
32 800
Water and electricity paid
137 000
Rent expense paid
296 000
Advertising expense
25 500
Insurance paid
30 000
Maintenance on factory plant and machinery
19 404
Depreciation on factory plant and machinery
32 390
Salaries and wages (see information no. 4)
?
Commission paid to sales staff
57 550
Additional information
• Factory indirect materials were bought for R53 360. Of this amount, R35 730 was
used in the factory.
• Water and electricity must be split between the factory and the sales department in
the ratio 3:1.
• 70% of the insurance expense relates to factory plant and equipment.
• Rent expense is allocated across various departments according to floor space. The
floor space is as follows:
Factory
1 800 m2
Sales department
900 m2
Office block
300 m2
4.
Salaries and wages
Salaries and wages must be allocated to the Cost Account applicable to the specific
employees. All employees are paid for 12 months or 52 weeks.
EMPLOYEES
Number of
employees
Basic salary/wage
per employee
Overtime hours
worked by each
employee in the year
Overtime rate per
hour
Bonus
EMPLOYEES
IN
PRODUCTION
PROCESS
7
FACTORY
FOREMAN
OFFICE
CLERK
FACTORY
CLEANERS
1
1
1
R6 400
per month
130 hours
R9 500
per month
R5 500
per month
R950
per week
13th cheque
13th cheque
10% of basic
annual wage
R57 per hours
12
2.2
UNIT COST AND BREAK-EVEN POINT
Stormers Manufacturers is a small business that manufactures rugby shirts, which are sold to
supporters. Their financial year ended on 31 August 2016.
REQUIRED
2.2.1
Calculate the following:
• Direct material cost per unit, indicated by (a) in the table in information 3 below.
• Factory overhead cost, indicated by (b) in the table in information 3 below.
2.2.2
Give a possible reason for the change in direct material cost per unit
2.2.3
Calculate the break-even point for the year ended 31 August 2016. The break-even
point for the previous year was 23 064 units.
INFORMATION
1.
During the financial year ended 31 August 2016, the business made and sold 42 000
shirts. Shirts are sold at a fix price of R60 each.
2.
All the shirts were sold. There was no work-in-progress at the beginning or end of the
financial year.
3.
The following costs were identified. Some unit costs are also given.
Year ended
31 August 2016
31 August 2015
Units produced and sold
42 000
30 000
TOTAL COST
UNIT COST
UNIT COST
Variable costs:
R1 722 000
Direct material
R756 000
(a)
R21,80
Direct labour
R651 000
R15,50
R12,75
Selling and distribution
R315 000
R7,50
R7,80
Fixed costs:
Factory overheads
Administration
R567 000
(b)
?
R9,00
R4,50
R11,75
R4,70
13
E
CASH BUDGETS/INCOME STATEMENT
When preparing the CASH BUDGET the most important word to keep in mind is CASH
Cash Inflows – Receipts Section
Cash Outflows – Payments Section
Cash surplus or deficit for each month is determined.
When preparing a PROJECTED INCOME STATEMENT, the key word to keep in mind is PROFIT (no assets/liabilities)
It reflects the estimated income and estimated expenses
Estimated profit/loss of a business over the budget period.
QUESTION 1
BUDGETS
(30 marks; 36 minutes)
A Clean Sweep is a cleaning business owned by Ella Broom. She runs five cleaning teams and has
contracts to clean residential houses as well as office blocks. Each team is responsible for certain
contracts that they then clean on a daily/weekly or monthly basis. Every team has a vehicle and a set
of cleaning equipment allocated to them.
PROJECTED INCOME STATEMENT FOR A CLEAN SWEEP
November 2017
Service income
C
A
• Residential services
B
• Commercial services
Cost of services
• Residential services
• Commercial services
Gross profit
Operating expenses
Wages and contributions
Rent expense
Advertising
Vehicle expenses
Insurance
Depreciation
Office expenses
Bad debts (5% of residential services)
Other
Operating profit
Interest expense
Net profit
December 2017
D
January 2018
763 182
?
?
?
?
134 600
26 920
107 680
572 050
(522 110)
323 680
E
?
45 750
7 500
21 900
?
6 710
?
49 940
(3 455)
46 485
142 676
?
?
620 506
(534 610)
F
9 810
G
45 750
H
21 950
I
6 961
?
85 896
(3 315)
82 581
Additional information
•
60% of the services are paid for in cash in the month of the service being offered.
•
The remaining amount is collected as follows:
– 25% of residential and commercial services in the month following the services;
– 15% of commercial services in the 2nd month; and
– 10% of residential services.
– 5% of residential services are also written off as bad debts in the 2nd month following the
service.
•
They expect that their services will be in the ratio of 4 : 1 between residential and commercial.
•
A Clean Sweep uses a mark-up of 425% on cost of services.
14
•
The rent expense is increasing by 9% on 1 January.
•
The wages and contributions expense is made up of the gross wages and contributions. The
contributions are:
– pension contribution (15%)
– medical aid contribution (20%)
– UIF contribution (1%)
– The pension contribution is going up to 18% of the gross wages in January.
– The workers will only be getting their increase in March.
•
Anna, a worker, has requested that part of her December wage (R4 000) not be given in December,
but given to her with January's wage. Ella agreed to this.
•
A Clean Sweep is planning to buy a new industrial vacuum cleaner at the beginning of January for
R7 500 cash. The % rate of depreciation remains the same throughout the budgeted period.
•
Depreciation is calculated at 12% per annum on vehicles.
•
A six-month contract was taken out to advertise in a magazine starting on 1 November 2017. The
total amount of R12 000 was paid for this contract on 1 November 2017. The other advertising is
paid by monthly debit orders to a total of R13 000 per month.
•
There will be a 10% increase for insurance on 1 January.
•
A Clean Sweep is planning to buy stationery worth R3 250 on account with The Book Co in January.
Stationery is classified as an office expense. All the other office expenses are cash.
•
Some vehicle expenses are paid for with cash and the rest are put on the account at Tip Top
Garage. The ratio of cash to credit spending on the vehicle expenses is 1 : 5.
•
The Book Co and Tip Top Garage are the only creditors that A Clean Sweep has. Ella pays both
accounts on the last day of every month.
An extract from the CASH BUDGET FOR A CLEAN SWEEP
January 2018
Payments
Cleaning materials
(???)
145 900
Wages and contributions
J
Advertising
K
Rent expense
9 810
Payment to creditors
L
Vehicle expenses
M
Insurance
8 250
Office expenses
Other
Vacuum cleaner
24 550
??
7 500
Surplus for the month
167 772
Balance at the beginning of the month
20 028
Balance at the end of the month
187 800
15
QUESTION 2
Budgets
(25 marks; 30 minutes)
The information given below was extracted from the accounting records of Nottingham Traders. The
financial year of Nottingham Traders ends annually on 30 September.
Information
1.
Bank overdraft on 1 September 2018, R11 200.
2.
Sales:
• 30% of all sales are for cash and the remainder is sold on credit.
• Gross profit margin on sales, 40%.
• Total sales:
Budgeted
Actual Total Sales
Total Sales
August 2018
September 2018
October 2018
R250 000
R?
R320 000
3.
Debtors:
• Credit terms are strictly 30 days from date of statement. Statements are posted to
customers on the last day of the month.
• A 2½% discount is offered to customers who settle their accounts in the same month
as the month in which the goods were sold to them.
• Debtors collections:
• 60% of debtors settle their accounts in the same month in which they purchased the
goods.
• 38% settle in 30 days from date of statement.
• 2% is written off as irrecoverable 30 days after date of statement.
4.
Drawings - the owner withdraws the following from the business monthly:
• Trading stock, R3 000
• Cash, R7 000
5.
Purchases:
• The business maintains a fixed base level of stock.
• 70% of all purchases is for cash and the remainder is purchased on credit.
• The business receives a 10% cash discount on cash purchases; no settlement
discount is received from suppliers.
• Creditors are paid in full after 30 days, the month following the purchase transaction.
Loan:
• In order to finance the purchase of new equipment, Nottingham Traders negotiated a
short-term loan from Reality Bank for R250 000 on 1 September 2018. The terms of
the loan agreement stipulated the following:
• Interest is calculated at 14% p.a. and must be paid on the last day of the month.
• R10 000 of the loan must be repaid monthly on the last day of the month. The first
instalment must be paid on 30 September 2018.
Fixed assets:
• New equipment costing R200 000 was purchased for cash on 1 October 2018.
• Depreciation is provided for on equipment at 15% p.a. on cost price. Depreciation on
this equipment amounts to R2 500 per month.
6.
7.
16
8.
Salaries and wages:
• Nottingham Traders employs 6 employees.
The 6 employees are made up as follows:
Manager earning a gross salary of
Receptionist earning a gross salary of
4 sales assistants each earning R10 000 per month
•
•
September
R15 000
8 000
40 000
63 000
October
R16 800
8 480
43 000
68 280
Deductions:
- PAYE: 20% of gross salary
- UIF: 1% of gross salary
Contributions:
- UIF: 1% of gross salary
•
The Salaries journal appeared as follows in the books of the business for the period
30 September 2018 and 31 October 2018:
September 2018
October 2018
Gross salary
63 000
Gross salary
68 280
Deductions:
(13 230)
Deductions:
(14 339)
12 600
13 656
• PAYE
• PAYE
630
683
• UIF
• UIF
Net salary
49 770
Net salary
53 941
Contributions:
Contributions:
630
683
• UIF
• UIF
•
The receptionist was on leave on 30 September and her net salary was only paid to
her on 5 October 2018.
9.
The sales assistants are paid a special commission of 1% on total sales. This commission
does not form part of their monthly salaries. Commission is paid in the month following the
month in which it is earned.
10.
Rent income:
• Nottingham Traders rents out an unused studio to an estate agent at
R7 500 per month.
• The owner of the estate agency only paid R3 750 in rent for September 2018. He
has agreed to pay the difference together with the rent for October at the beginning of
October.
• According to the lease agreement, the rent increases to R8 500 per month effective 1
October 2018.
12.
Rate of inflation 5%.
17
F
STOCK SYSTEMS
Inventory valuations – FIFO and weighted average
Inventory systems – Perpetual and Periodic systems
STOCK SYSTEMS
This is how stock is managed and controlled in the financial records. There are two systems that can be used
•
•
•
•
PERPETUAL STOCK SYSTEM
Trading stock and cost of sales accounts are
updated ach time stock is bought and sold
The cost of goods sold (cost of sales) can be
determined when stock is sold
The physical stocktaking can therefore be
compared to the financial records (Trading stock
account)
Stock deficits can easily be determined
•
•
•
•
•
•
•
PERIODIC STOCK SYSTEM
The Purchases account is used to record stock
bought
The sales account is used to record stock sold
The cost price of goods sold (cost of sales in not
available when stock is sold.
So, no ongoing record of stock is kept in the
Trading Stock account
Cost of sales is only calculated at the end of a
financial year
It is important to perform regular stocktaking to
validate stock
It is very difficult to determine stock deficits
CALCULATION OF COST OF SALES – PERIODIC SYSTEM
Opening Stock
xxxx
Purchases (net)
xxxx
Carriage on Purchases
xxxx
Customs Duty
xxxx
Total stock available to sell
Closing/Final stock
(xxx)
COST OF GOODS SOLS
XXXX
QUESTION 1 – Stock Valuation
[37 marks; 22 minutes]
You are provided with information related to Sheeran Rugby Balls Shop for the year ended 28
February 2016. The owner of the business is Ed Sheeran.
The business uses the perpetual inventory system and the FIFO method to valuate stock.
REQUIRED
1.1 Explain the meaning of the terms FIFO and Weighted Average stock valuation.
1.2 The selling price of the rugby balls was kept constant throughout the year. Calculate the selling
price per rugby ball.
1.3 The owner, Ed Sheeran, is aware that some rugby balls had been stolen out of the storeroom
during April 2015. No entry has been made.
• Calculate the number of balls that are missing.
• What double entry would you make in the general ledger to record this? Also provide the
amount.
1.4 Value the stock on hand at the end of the year according to the FIFO method.
1.5 Calculate the following:
• Cost of sales
• Gross profit for the year
1.6 Sheeran is not sure when he should place an order for additional rugby balls.
• How long can he expect the closing stock to last? Provide a calculation to support your
answer.
• What advice would you offer Sheeran in respect of the final stock? Provide TWO points.
18
INFORMATION
Accounting records relating to the rugby balls:
Details
Date
Number of
balls
Opening stock
1 March 2015
750
2 480
Purchases
20 May 2015
800
25 October 2015
1 200
16 December 2015
480
Closing stock
28 February 2016
1 100
Sales
1 March 2015 to
2 100
28 February 2016
Unit price
Total
R110
R82 500
R340 800
R120 000
R144 000
R76 800
?
R430 500
R150
R120
R160
?
?
Question 2
YOU ARE REQUIRED TO DO THE FOLLOWING;
•
Answer questions and do calculations.
(48)
Boards Unlimited sell two types of boards: White Boards and Chalk Boards. These boards are supplied
to schools in the Gauteng area. They also provide the service of installing these boards for which they
charge a fee. This fee is recorded as Installation Fee Income in the accounting records of the business.
White Boards are purchased from a manufacturer in Cape Town. Boards Unlimited are liable for any
costs to transport the boards to their premises in Johannesburg. Chalk Boards are purchased from a
manufacturer in Johannesburg and the business incurs no delivery costs for delivery of these boards
to the premises of Boards Unlimited.
Boards Unlimited uses the following methods to value their boards:
•
Chalk Boards: first-in-first out method (FIFO).
•
White Boards: weighted average method.
Boards Unlimited uses the periodic inventory system to record stock in their accounting records.
Boards Unlimited also has two delivery vans, which are used to install the boards when sold.
• Delivery van 1 was purchased on 1 January 2012 for R250 000 (excluding VAT).
• Delivery van 2 was purchased on 1 February 2014 for R300 000 (excluding VAT).
Vehicles are depreciated at 20% p.a.
Information
1.
The financial year of Boards Unlimited ends on 30 June 2015.
2.
Fixed assets on 1 July 2014:
Cost
Price
R250 000
300 000
Delivery van 1
Delivery van 2
3.
Accumulated
Depreciation
106 000
25 000
Carrying
value
R144 000
275 000
Stock on hand:
Chalk Boards
White Boards
Units
60
90
30 June 2015
Price
Total
?
R?
?
?
?
Units
120
65
30 June 2014
Price
Total
R550
R66 000
700
45 500
111 500
19
4.
Purchases, transport costs, returns and donations of boards for the financial year ended
June 2015. All prices exclude VAT and transport costs.
4.1
Purchases:
Date
1 Aug 14
1 Dec 14
1 Mar 15
1 Jun 15
Chalk Boards
Units
Price
80
R550
100
450
70
550
50
620
300
Total
R44 000
45 000
38 500
31 000
158 200
Date
1 Sept 14
1 Dec 14
1 Feb 15
1 Jun 15
White Boards
Units
Price
135
R750
100
600
60
800
90
800
385
Total
R101 250
60 000
48 000
72 000
281 250
4.2
Transport costs:
The delivery cost per White Board from Cape Town to Johannesburg was R100 for the financial
year ended 30 June 2014. This cost will increase by 10% on 1 July 2014 and then remain
constant throughout the financial year. Note: If goods are returned to the supplier because
they are faulty, the transport cost is not recovered.
4.3
Returns:
10 White Boards bought on 1 February 2015 were found to be damaged on their arrival in
Johannesburg. These units were returned to the supplier. The transport cost to return the
boards to the supplier in Cape Town is for the account of Boards Unlimited.
4.4
Donations:
The owner donated 5 White Boards, which were purchased on 1 June 2015 to The Helping
Hands Community School.
5.
Sales, excluding VAT and installation costs:
Chalk Boards
White Boards
Units
360
320
30 June 2015
Price
Total
R1 188
R427 680
R2 070
662 400
1 090 080
5. Traded-in delivery van 1 for delivery van 3 on 1 May 2015 at a profit of R5 000. The cost
price of delivery van 3 was R360 000 excluding VAT.
20
G – ANALYSIS AND INTERPRETAION OF FINANCIAL STATEMENTS
QUESTION 1
NTERPRETATION OF FINANCIAL STATEMENTS
Johnsons Limited is a shoe store with 600 000 shares that are registered. This business has been
very successful over the past three years.
It therefore extended its shop premises by building a new addition. In order to finance this, Johnsons
Limited took out a loan for R500 000 on 1 September 2015.
There are no other loans in existence. The loan will be paid back in annual instalments of R50 000 on
1 September every year.
INFORMATION
JOHNSONS LIMITED.
EXTRACT FROM INCOME STATEMENT FOR THE YEA ENDED 28 FEBRUARY 2015.
2015
2014
Sales
1 440 000
1 080 000
Cost of sales
(1 200 000)
(900 000)
Gross Profit
240 000
180 000
Other operating income
5 400
3 750
Operating expenses
(72 945)
(68 550)
Operating Profit
172 455
115 200
Interest expense
(32 500)
Profit (loss) before tax
139 995
115 200
Income Tax
(48 984)
(40 320)
Net profit (loss) for the year
90 971
74 880
EXTRACT FROM THE BALANCE SHEET
2015
2014
ASSETS
Fixed Assets
1 260 000
681 640
Current assets
314 380
169 269
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital(400 000 shares in issue on 29/2/2015)
300 000 shares in issue on 28/2/2014)
Retained Income
Non-Current Liabilities
Loan: BB Bank
Current Liabilities
Trade and other Payables
934 880
850 000
730 000
630 000
84 880
450 000
450 000
189 500
189 500
100 000
120 900
120 900
EXTRACT FROM THE NOTES TO THE FINANCIAL STATEMENT
1. TRADE AND OTHER PAYABLES
2015
2014
97 500
87 000
3 750
3 450
11 250
12 000
27 000
18 450
50 000
189 50
120 900
RATIOS AND PERCENTAGES CALCULATED FROM THE FINANCIAL STATEMENTS
2015
2014
Acid test ratio
1,36: 1
0,94 :1
Average debtors collection period
46 days
38 days
Average creditors payment period
?
50 days
Return on capital employed
15,9 %
15,7 %
Trade Creditors
SARS (Paye)
SARS (Income Tax)
Shareholder for dividend
Short term loan
21
QUESTION 2
FINANCIAL INDICATORS
ABRIGED GROUP STATEMENTS OF FINANCIAL POSITION
ASSETS
Non-current assets
Current Assets
Inventories
Trade and other receivables
Other current assets
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Total equity
Share capital
Retained earnings
Non-current liabilities
Current Liabilities
Trade and other payables
Provisions
Tax payable
Total equity and liabilities
Number of shares in issue (millions)
Key ratios
Return on equity
Inventory turn (stock turnover rate – closing stock only) (times)
2015 Rm
2014 Rm
1 280
5 991
787
3 766
113
1 325
7 271
1 197
5 720
670
3 421
69
1 560
6 917
6 219
293
5 026
97
955
719
71
165
7 271
417.8
5 981
205
5 776
97
839
598
73
168
6 917
424.0
39
5.4
40
5.7
ABRIDGED GROUP STATEMENTS OF INCOME
Sale of merchandise
Profit before tax
Tax expense
Profit for the period (net profit)
Earnings per share
Weighted average number of shares
Gross margin (gross profit margin) (%)
2015
9 765
3 366
(958)
2 408
?
421.9
56.6
2014
8 830
3 190
(965)
2 225
526.3
422.8
56.7
ABRIDGED GROUP STATEMENT OF CHANGES IN EQUITY
Total equity at the beginning of the period
Profit for the period (net Profit)
Dividends
Shares issued
Shares repurchased
2015
5 981
2 408
(1 527)
111
(754)
2014
5 046
2 225
(1 282)
67
(83)
Total equity at the end of the period
6 219
5 981
Cents per share:
Dividend
362
326
Final – payable/paid September
158
157
Interim – paid March/April
204
169
QUESTION 3
ON ANSWER SHEET
GOOD LUCK FOR YOUR FINAL EXAMS
IF YOU WANT THE PAST PAPERS FOR GDE AND IEB YOU MAY EMAIL ME
AT
aharmse@crawfordschools.co.za
22
GRADE 12
ACCOUNTING
2020
ANSWER BOOKLET
ASSET MANAGEMENT
RECONS AND AGE ANALYSIS
VAT
MANUFACTURING
CASH BUDGETS
ANALYSIS AND INTERPRETION
A. ASSET MANAGEMENT
QUESTION 1
REQUIRED:
Prepare the following ledger accounts in the accounting records of Posh Traders for the
period 1 July 2014 to 30 June 2015. Please note: Only balance or close off the accounts
on 30 June 2015, the last day of the financial year.
Accumulated depreciation on vehicles
ACCUMULATED DEPRECIATION ON VEHICLES
WORKINGS:
ASSET DISPOSAL
Page 1 of 28
1.2
Complete the Property, plant and equipment (fixed assets) note to the financial statements on
30 June 2015. Note: Some figures have already been inserted in the note and are correct.
Show workings in brackets so that part-marks can be awarded.
(10)
PROPERTY, PLANT & EQUIPMENT (FIXED ASSETS)
Vehicles
Carrying value at beginning of year
Cost
Accumulated depreciation
(160 000)
Movements
Carrying value at end of year
Cost
610 000
Accumulated depreciation
QUESTION 2
Answer the following questions
What method of depreciation is used?
1
On what date did they sell the car?
1
They sold the car for cash. Calculate the profit or loss
3
Page 2 of 28
QUESTION 3
TANGIBLE ASSET ANALYSIS (24 marks)
Refer to the Tangible asset note to answer the following questions.
1.1
On what date was the new machinery costing R540 000 purchased?
(4)
1.2
Showing a calculation, explain why the depreciation for the year on the old machinery
amounted to R28 799.
1.3
Calculate the value (a) in the Tangible asset note that relates to the disposal.
(3)
(4)
1.4
Calculate the value (b) in the Tangible asset note:
(9)
1.5
Calculate the value (c) in the Tangible asset note:
(4)
Page 3 of 28
B - RECONCILIARIONS – CONTROLS AND AGE ANALYSIS
QUESTION 1
How can the preparation of debtor’s age analysis assist the owner and credit controller
in controlling debtors?
•
4
•
•
•
When David started working at Lee Stores on 1 March 2015, the Debtors Control
Account was R85 000. At the end of the financial year the balance is R167 000.
Calculate the average debtor’s collection in days for the financial year 1
March 2015 – 28 February 2016. Credit sales amounted to R680 000
6
Should Gayle be happy with these results? Give two reasons for your answer. Consider
the fact that debtors have 60 days to pay.
•
•
3
Gayle feels that the control of debtors has not been satisfactory since David was
employed. Refer to the debtor’s age analysis and the Debtors Control account provided
and comment whether he should be concerned about the debtor’s management. Quote
specific information, two points from the debtor’s age analysis and two point from the
Debtors Control account.
•
•
•
•
Page 4 of 28
QUESTION 2
T. Wilson does not agree with the age analysis sent to him and pointed out that his debt is
not older than 30 days. Use the information given in T. Wilson’s account in the debtors’
ledger (see information point 4) to prepare the corrected age analysis for T. Wilson.
Current
30 days
60 days
90 days
QUESTION 3
In the Bank Reconciliation Statement, is the balance a debit or a credit according to the
Bank Statement? Give a reason for your answer
2
Calculate the balance according to the bank account of Pieterse Materials on 28
February 2015.
6
Is the balance favourable or unfavourable according to the bank account
2
What must happen to cheque No 840 (dated 5 September 2014)
2
Where in the financial statements will you record cheque No 1065.
2
Page 5 of 28
(7)
QUESTION 4
4.1
RECONCILIATIONS
(29 marks; 35 minutes)
There is one mistake in the bank reconciliation statement that has not been
mentioned in the additional information. Describe this mistake and where it should
have been recorded instead.
(2)
4.2
Calculate the bank account balance on 30 November 2016 after taking the errors and
additional information into account, and state whether it is favourable or
unfavourable. Show your workings.
(4)
4.3
Explain how cheque 1035 will be treated in the financial statements.
(2)
4.4
Tubby has heard that if a shop has credit sales they can sell much more than if they
only sell for cash. He spoke to his sister about this and she advised him not to sell on
credit. Give three reasons why his sister would advise him not to have credit sales.
•
•
•
4.2.5
(3
Tubby wonders if he should hire an internal auditor for a month because the business
seems to be having problems with the accuracy of their recording of cash transactions.
Page 6 of 28
4.2.5.1
Explain what an internal auditor does.
2
4.2.5.2
List two types of audit evidence that could be looked at by an internal auditor and
explain what they would be compared to, to check the accuracy of the cash
transactions.
(4)
4.6
Use the statement from The Cereal Factory to draw up the debtor's age analysis as it
should have appeared on the statement. Do not take the additional information into
account.
Current
30 days
60 days
90 days
(4)
4.7
Use the additional information to draw up the creditor's reconciliation.
Incorrect balance as per statement
16 850
(4)
4.8
How could cheque 1033 be in the bank reconciliation statement if it was received by
The Cereal Factory on 28 November? (This is not a mistake.)
1
4.9
Tubby is upset that he never received the discount when he paid on 3 October. Explain
to Tubby why he was not granted the discount.
Page 7 of 28
1
4.10
The Cereal Factory are concerned that Tub's Groceries are not keeping to their credit
terms, but they do not want to lose them as a customer, which they might do if they
start charging them interest. Discuss two other procedures they can put in place to
increase their chances of Tub's Groceries keeping to the credit terms.
•
•
2
Page 8 of 28
C – VAT
QUESTION 1
(15 marks; 9 minutes)
Refer to the information in the Information Booklet.
Calculate the amount owing to SARS in respect of VAT, at the end of April 2017 after taking the
transactions given into account.
Transaction No
Amount owing to SARS
1.1
1.2
2.
3.
4.
5.
6.
7.
8.
9.
Final Amount owing
QUESTION 2 VAT
[15]
(20 marks, 15 minutes)
Refer to the Information Booklet for information relating to the accounting records of All Sports
Traders for June 2018.
Required:
Calculate the amount owing to SARS in respect of VAT at the end of June 2018 after taking
the transactions into account.
NB: Clearly show if the vat is an increase + or a decrease – or ( ).
Transaction number
(show calculations where necessary)
1
Amount owing to
SARS
11 120
2
3
4
5
6
7
8
9
(15)
Page 9 of 28
After only one year of trading, Gareth decided to close the business down because it
was not doing well. Owing to the fact that there was very little cash they could only
pay their creditor, Sport's Holding Ltd, 35 cents in every rand owed. Sport's Holding
Ltd has agreed to write off the balance of their debt.
What double entry should the accountant process for the VAT of R1 512
relating to the writing off of this account?
ACCOUNT DEBIT: _________________________________________________
ACCOUNT CREDIT: _______________________________________________
(2)
Gareth bought a new car for his son to use to get to University on a daily basis. The cost of the car
was R200 000 plus VAT of R28 000. He has recorded this in the name of All Sports Traders. As the
external auditor, what comment would you make regarding this?
(3)
20
Page 10 of 28
D – MANUFACTURING ACCOUNTS
QUESTION 1
MANUFACTURING
(50 marks; 30 minutes)
Refer to the Information Booklet for information relating to ZUKA Manufacturers.
Required:
1.1
Calculate the value of raw materials on hand on 28 February 2018 using the FIFO method. (5)
1.2
Calculate the value of raw material cost that would appear in the Production Cost
Statement.
(5)
1.3
Calculate the value of direct labour cost that would appear in the Production Cost Statement
for the year ended 28 February 2018.
(7)
1.4
The business produced 4 000 jackets during the year. There was no work-in-process at the
beginning or at the end of the year. Factory overhead costs amounted to R67,55 per unit.
1.4.1
Calculate the total production cost of finished goods.
(5)
1.4.2
Calculate the unit cost of production per jacket.
(3)
1.4.3
Identify the number of metres of raw material fabric that appear to be missing.
(5)
Page 11 of 28
1.4.4
Apart from theft, give one most likely reason for this shortage. Using two points, advise
Jonathan in this regard.
(6)
Valid Reason:
Advice:
1.5
Calculate the cost of sales for the year ended 28 February 2018.
(5)
1.6.1
Calculate the break-even point for the current financial year.
(4)
1.6.2
The break-even point for 2017 was 2 273 units. Should Jonathan be satisfied or dissatisfied
with the break-even point for 2018 calculated in 1.6.1? Briefly explain.
(3)
1.7
Jonathan has agreed to allow one of his workers to use the machinery over weekends to make
t-shirts to sell when he returns to his home in Botswana over Easter. The worker will pay a
rental of R500 per weekend. Jonathan is not sure how he would account for this income – as
operating income in his Statement of Income, or in some way in the Production Cost
Statement. Suggest how you think this income should be treated, and why.
(2)
Page 12 of 28
QUESTION 2 – Manufacturing
2.1
[39 marks; 24 minutes]
PRODUCTION COST STATEMENT
2.1.1
Factory Overhead Cost
Factory maintenance
19 404
Depreciation
32 390
2.1.2
PRODUCTION COST STATEMENT FOR THE YEAR ENDED 30 JUNE 2016
(12)
PRIMARY COST
Factory overhead
TOTAL PRODUCTION COST
COST OF PRODUCTION FOR FINISHED GOODS
2.2
2.2.1
(17)
UNIT COST AND BREAK-EVEN POINT
Calculate the following:
Direct material cost per unit, indicated by (a) in the table in information 3 in the information
book.
(2)
Page 13 of 28
Factory overhead cost, indicated by (b) in the table in information 3 in the information book.
2.2.2
Give a possible reason for the change in direct material cost per unit.
(2)
(2)
_____________________________________________________________
2.2.3
Calculate the break-even point for the year ended 31 August 2016. The break-even point
for the previous year was 23 064 units.
(4)
Page 14 of 28
E
BUDGETS
QUESTION 1 BUDGETS
(30 marks; 36 minutes)
Round off cents to the nearest Rand.
1.1
Calculate the missing figures denoted by the letters "A" to "I". The "?" do not need to
be calculated.
A
B
C
D
E
F
G
H
I
1.2
(9)
Write down two items that could be included in the cost of services.
•
•
1.3
(2)
Calculate the rate of depreciation used on the industrial vacuum cleaner.
(3)
1.4
Complete the Debtors' Collection Schedule for January 2018.
Calculations
January 2018
November
December
January
–
(3)
Page 15 of 28
1.5
Calculate the missing figures denoted by the letters "J" to "M". The "?" do not need to be
calculated.
J
K
L
M
1.6
(5)
Ella is getting frustrated because the vacuums and carpet cleaners are being broken
on a very regular basis. She knows that if she deducts the cost of repairs or the cost
of new equipment off the workers' salaries, their motivation and attitude will
deteriorate, so she cannot do this.
Suggest two things she can do to ensure the equipment lasts longer and to help
prevent the workers from breaking the equipment.
•
•
1.7
(4
Ella is considering expanding her business. Give three points she should consider when
expanding, and explain whether you think she should expand or not.
•
•
•
Should they expand?
(4
QUESTION 2
Budgets
(25 marks; 30 minutes)
Refer to the Information Booklet for information relating to Nottingham Traders.
2.1
Complete the debtors' collection schedule by calculating the amounts missing denoted by an
*. Note: Certain information has been filled in for you and this information is correct. Do not
calculate the amounts denoted by a ?.
(4)
Collections
Total sales
Credit sales
September
October
August 2018
R250 000
R175 000
*
September 2018
October 2018
*
140 000
320 000
*
*
131 040
?
2.2
53 200
184 240
What amounts will appear in the Projected Statement of Income for the month ended 31
October 2018 for -
Page 16 of 28
2.3
2.2.1 Discount allowed
(2)
2.2.2 Bad debts
(2)
Complete the Cash Budget for October 2018 by calculating the missing amounts denoted by
an *. Note: Certain information has been filled in for you and this information is correct.
(13)
Cash receipts
Cash sales
Cash receipts from customers
Rent income
Total cash receipts
October
Calculations:
*
184 240
*
292 490
Cash Payments
Cash purchases
*
Payments to suppliers
*
Instalment on loan
10 000
Interest on loan
*
Commission on sales
*
Salaries
*
PAYE
UIF
13 672
*
Drawings
7 000
Equipment
200 000
Other operating expenses
38 000
Total cash payments
494 849
Page 17 of 28
2.4
Calculate the average annual increase that the receptionist received on her salary for October
2018.
(2)
2.5
The receptionist is not happy with the increase that she received. She has approached you for
help.
Give her one reason why she should be happy with her increase.
(2)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____
[25 marks]
Page 18 of 28
F
STOCK SYSTEMS
QUESTION 1 – Stock Valuation
1.1
[37 marks; 22 minutes]
Explain the meaning of the terms FIFO and Weighted Average stock valuation.
FIFO - ______________________________________________________________
Weighted Average - ___________________________________________________________
(4)
1.2
1.3
The selling price of the rugby balls was kept constant throughout the year. Calculate the
selling price per rugby ball.
(3)
The owner, Ed Sheeran, is aware that some rugby balls had been stolen out of the storeroom
during April 2015. No entry has been made.
• Calculate the number of balls that are missing.
• What double entry would you make in the general ledger to record this? Also provide the
amount.
Account debited Account credited Amount (8)
1.4
Value the stock on hand at the end of the year according to the FIFO method.
(4)
Page 19 of 28
1.5
Calculate the following:
Cost of sale
(8)
Gross profit
(3)
1.6
Sheeran is not sure when he should place an order for additional rugby balls.
• How long can he expect the closing stock to last? Provide a calculation to support your
answer.
• What advice would you offer Sheeran in respect of the final stock? Provide TWO points.
_______________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
__________________________________
QUESTION 2 (48 marks; 29 minutes)
Refer to the Information booklet for information relating to Boards Unlimited.
2.1
2.1.1 Calculate the value of Chalk Boards on hand on 30 June 2015.
(3)
2.1.2
(8)
Calculate the value of the White Boards on hand on 30 June 2015.
2.2
Page 20 of 28
2.2.1
Calculate the gross profit achieved on the sale of the Chalk Boards for the year ended
30 June 2015.
(5)
2.2.2
Calculate the profit mark-up achieved by Boards Unlimited on the sale of Chalk Boards for the
year ended 30 June 2015.
(3)
2.2.3
On average the business adds a profit mark-up of 140% to the cost price of Chalk Boards.
Supply two reasons why the mark-up percentage calculated in 2.2.2 is different from the
average mark-up added.
(2)
•
___________________________________________________________________
•
___________________________________________________________________
.3
2.3.1
Bryson Mansoor, the owner of Boards Unlimited is concerned that a number of White Boards
have gone missing. Are his concerns warranted? Show a calculation to prove/disprove that
White Boards have gone missing.
(5)
2.3.2
Explain one control measure that Bryson could implement to ensure that stock is not stolen.
Note: You may not use security cameras as a control measure and your control measure must
be applicable to the nature of the business.
(2)
•
______________________________________________________________
______________________________________________________________
______________________________________________________________
2.4
Refer to information point 2.1. Why do you think that the price of both Chalk Boards and White
Boards decreased on 1 December 2015? (2)
___________________________________________________________________
___________________________________________________________________
Page 21 of 28
3.5
Determine the method of depreciation that is being applied to delivery vehicles.
calculation to support your answer.
Calculation:
Show a
(4)
Method of depreciation: _________________________________________________
2.6
Supply two suitable reasons why you think that delivery van 1 was being traded in on
delivery van 3.
(2)
•
______________________________________________________________
______________________________________________________________
•
______________________________________________________________
______________________________________________________________
2.7
Calculate the price at which vehicle 1 was traded in on vehicle 3. Hint: Prepare the asset
disposal account.
(6)
2.8
What amount would be recorded in the Statement of Income for depreciation on 30 June 2015?
(6)
Delivery van 1
Delivery van 2
Delivery van 2
Total amount to be recorded in the Statement of Income:
_________________
Page 22 of 28
G – ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS
QUESTION 1
ANSWER THE FOLLOWING QUESTIONS
1. The Percentage operating profit before interest on turnover (sales) for 2014 was
10,67 %. Calculate the percentage operating profit before interest on turnover for
2015
3
2. The percentage net profit after interest (profit before tax on turnover was 10,6 7%
for 2014. Calculate the percentage profit after interest (profit before tax) on
turnover for 2015.
3
3. Comment what effect the renovations and expansion of shop premises has had on
the business, referring to your calculation above.
6
4. Calculate the current ratio.
5. Calculate the average creditors payment period if the credit purchases for 2015
amounted to 621 800. Use only trader creditors in your calculations.
6.
4
Comment on the liquidity of the business and suggest two ways in which to
improve the liquidity. Refer to the table with given ratios as well as your
calculations in question 4 and 5 above.
Page 23 of 28
7. Calculate the interest rate paid on the loan.
5
8. Calculate the debt equity ratio.
4
9. Do you think it wise for the business to take out a loan to finance the expansion of
its store? Refer to your calculations in question 7 and 8 as well as the ratio for
return on capital employed on the given table.
6
10. How much has been paid to SARS for income tax during this year?
Page 24 of 28
11. Calculate the dividends per share (in cents).
8
12. The company offered R2.10 per share to a shareholder holding 50 000 ordinary
shares. Advise the shareholder whether this offer must be accepted or not.
5
13. List two ways in which debtors could be encourages to pay their debt earlier.
Page 25 of 28
QUESTION 2
FINANCIAL INDICATORS
Calculate the following:
Acid Test Ratio
3
Stockholding period for which stock is on hand
2
Average debtors’ collection period
4
Gearing ratio (debt-equity ratio)
2
Return on equity of 39 % would have been calculated using which formula?
1
Return on average capital employed.
4
Cost of sales.
3
Earnings per share
2
Page 26 of 28
Net asset value
2
If you had 10 000 shares in Truworths Limited, what amount would you
have been paid out in September?
2
What does triple-bottom line reporting include?
3
QUESTION 3
If you were asked the following questions – what ratios would you consider?
Did the business achieve its profit margin?
•
•
How well does the business control its overheads/expenses?
•
•
•
Will the business be able to pay short- term obligations (debts), such as bank overdraft, creditors
and short term loans? How well did the business manage their working capital?
•
•
•
Page 27 of 28
How effective the business manages its working capital will have an effect on its liquidity.
•
•
•
•
Do your assets exceed your liabilities
•
How is the business financed? Is the business credit worthy/low geared? Will the bank grant the
business a loan?
•
Does the business offer a good return on the capital invested in the business?
•
•
How do we value the economic status of a company (Market value ratios)
•
•
•
Page 28 of 28
2020
GRADE 12
SEPTEMBER 2020
MEMORANDUM
A
B
C
D
E
F
ASSET MANAGEMENT
RECONCILIATIONS AND AGE ANALYSIS
VAT
MANUFACTURING ACCOUNTS
STOCK SYSTEMS
ANALYSIS AND INTERPRETATION
A - ASSET MANAGEMENT
1.1
Prepare the following ledger accounts in the accounting records of Posh Traders for the period 1 July 2014 to 30
June 2015. Please note: Only balance or close off the accounts on 30 June 2015, the last day of the financial year.
1.1.1
Accumulated depreciation on vehicles
(18)
ACCUMULATED DEPRECIATION ON VEHICLES
‚
2015
Mar
2015
June
31
Asset
disposal ü
GJ
30
Balance
C/d
þ
105 500
þ
120 000
2014
July
1
Balance
B/d
ü 160 000

2015
Mar
31
Depreciation ü
GJ
þ 25 500
ƒ
June
30
Depreciation ü
GJ
þ 40 000
225 500
225 500
July
1
Balance
B/d
þ120 000
WORKINGS:
31 March 2015:
 20/100 üx 9/12 ü x (250 000 – 80 000) ü = 25 500
‚
160 000 / 2 = 80 000 ü + 25 500 þ = 105 500
30 June 2015:
•
20/100 x (250 000 – 80 000) = 34 000 üü
20/100 x 1/12 x 360 000 = 6 000 üü
1.1.2
As per working 
]
]
Award two method marks
if cost of R285 000 used
instead of R250 000
40 000
Asset disposal
(10)
ASSET DISPOSAL
As per working 1.1.1
100/114 x 285 000
2015
Mar
31
Vehicles ü
GJ
üü
250 000
2015
Mar
31
Accumulated
depreciation on
vehicles ü
GJ
þ105 500
100/114 x 159 600
Debtors for
insurance ü / BSure
Loss on sale of
asset þ
GJ
üü
140 000
GJ
þ 4 500
250 000
1.2
250 000
Complete the Property, plant and equipment (fixed assets) note to the financial statements on 30 June 2015. Note:
Some figures have already been inserted in the note. Show workings in brackets so that part-marks can be
awarded.
PROPERTY, PLANT & EQUIPMENT (FIXED ASSETS)
Carrying value at beginning of year
Cost
(10)
Vehicles
þ 340 000
(100/114 x 285 000 = 250 000 x 2)
ü 500 000
Page 1 of 17
Accumulated depreciation
(160 000)
Movements
Additions at cost ü
ü 360 000
As per asset disposal account – see 1.1.2
Disposals at carrying value ü
(250 000 – 105 500)
þ (144 500)
As per accumulated depreciation account – see 1.1.1
Depreciation for the year ü
(25 500 + 40 000)
þ (65 500)
Carrying value at end of year
þ 490 000
Cost
610 000
As per balance of accumulated depreciation account – see 1.1.1
Accumulated depreciation
þ (120 000)
50
50
QUESTION 2
Answer the following questions
What method of depreciation is used?
550 000X100/2200 000 = 25 %
On what date did they sell the car?
31 October 2015
They sold the car for cash. Calculate the profit or loss
2200 000 – 1168750 = 1031250 (BV) – 1000 000 = 31250 LOSS
CP – ACC DEP = BV
QUESTION 3
TANGIBLE ASSET ANALYSIS
1
1
3
(24 marks)
Refer to the Tangible asset note to answer the following questions.
1.1
On what date was the new machinery costing R540 000 purchased?
540 000 × 20% = 108 000
64 799 – 28 799 = 36 000
36 000/108 000 × 12 = 4 months
(4)
Therefore 1 November 2016
Page 2 of 17
1.2
Showing a calculation, explain why the depreciation for the year on the old machinery amounted to R28
799.
20% on 240 000 = 48 000 but machinery only worth 28 800, so it can only be depreciated by 28 799.
1.3
(3)
Calculate the value (a) in the Tangible asset note that relates to the disposal.
450 000 – 168 750 = 281 250 × 25% × 8/12 = 46 875
450 000 – [168 750 + 46 875] = 234 375
1.4
(4)
Calculate the value (b) in the Tangible asset note:
Depreciation on asset sold 46 875
Depreciation on new vehicle 675 000 × 25% × 4/12 = 56 250
Depreciation on old but not sold vehicle (Cp 510 000 – Ad 210 800)
× 25% = 74 800
Total 177 925
1.5
(9)
Calculate the value (c) in the Tangible asset note:
379 550 + 177 925 – 215 625 = 341 850
(4)
B - RECONCILIATIONS – CONTROLS AND AGE ANALYSIS
QUESTION 1
How can the preparation of debtor’s age analysis assist the owner and credit controller in controlling debtors?
•
Effective methods of credit control should be in place
•
Action can be taken against debtors who do not comply –charge interest
•
Bad debts can be minimized
•
Make decisions bases on age analysis
•
Form of internal control
When David started working at Lee Stores on 1 March 2015, the Debtors Control Account was R85 000. At
the end of the financial year the balance is R167 000.
Calculate the average debtor’s collection in days for the financial year 1 March 2015 – 28 February
2016. Credit sales amounted to R680 000
85000 + 167000/2 = 126000x365/680 000 = 67,63 days
Should Gayle be happy with these results? Give two reasons for your answer. Consider the fact that debtors
have 60 days to pay.
•
No taking 6 days longer than they should
•
No interest on overdue accounts has been charged
Gayle feels that the control of debtors has not been satisfactory since David was employed. Refer to the
debtor’s age analysis and the Debtors Control account provided and comment whether he should be
concerned about the debtor’s management. Quote specific information, two points from the debtor’s age
analysis and two point from the Debtors Control account.
•
2 debtors over their credit limit
•
P Pink more than 60 days in arrear
•
No interest has been charged
•
Have not written off P Pink
4
6
3
QUESTION 2
Current
15 750ü
30 days
60 days
90 days
18 000 ü
5 250ü
0
(4 500) ü
(750) ü
(4 500)ü
(4 500)ü
9 000
0
7
Page 3 of 17
QUESTION 3
In the Bank Reconciliation Statement, is the balance a debit or a credit according to the Bank Statement? Give
a reason for your answer
2
A credit balance. The bank reflects all favourable balances as credits – this is because the bank owes money
to the business (creditor of the bank)
Calculate the balance according to the bank account of Pieterse Materials on 28 February 2015.
8000+3000 – 2200 – 5600 – 4300 = (1100)
Is the balance favourable or unfavourable according to the bank account
An unfavourable balance. The business reflects all unfavourable balances as credit balances. According to
the business, money is owed to the bank
6
What must happen to cheque No 840 (dated 5 September 2014)
The cheque must be cancelled in the CRJ because it is no longer a legal tender. By March this cheque will be
six months old and therefore stale. This cheque must not be entered in the Bank Reconciliation statement for
February.
Where in the financial statements will you record cheque No 1065.
2
2
2
Add it back to Creditors in the Trade and other payables add it back to Bank in Cash and Cash equivalents or if
bank in overdraft subtract it.
QUESTION 4
RECONCILIATIONS (29 marks; 35 minutes)
.
4.1
There is one mistake that has not been mentioned that is in the bank reconciliation statement. Describe this mistake
and where it should have been recorded instead.
Cheque 577 is stale and should have been cancelled in the CRJ.
(2)
4.2
Calculate the bank account balance on 30 November 2016 after taking the errors and additional information into
account, and state whether it is favourable or unfavourable. Show your workings.
– 11 350 + 33 000 – 5 000 – 750 = 15 900 favourable
(4)
4.3
Explain how cheque 1035 will be treated in the financial statements.
R750 will be added back to bank and subtract it from drawings (added back to owner's equity.)
(2)
4.4
Tubby has heard that if a shop has credit sales they can sell much more than if they only sell for cash. He spoke to his sister
about this and she advised him not to sell on credit. Give three reasons why his sister would advise him not to have credit sales.
People have to buy groceries anyway, so they will not buy much more on credit.
More chance of bad debts.
More paper work/telephoning, emailing, SMSing.
Hiring of extra people to keep control of the debtors.
Each reason
(3)
4.5
Tubby wonders if he should hire an internal auditor for a month because the business seems to be having problems
with the accuracy of their recording of cash transactions.
2.5.1
Explain what an internal auditor does.
An internal auditor will audit the procedures and processes: See whether they are effective and whether
they are being followed, and suggest any improvements to management.
(2)
2.5.2
List two types of audit evidence that could be looked at by an internal auditor and explain what they would
be compared to, to check the accuracy of the cash transactions.
•
Duplicate receipts – compare with the entries in CRJ.
•
Cheque counterfoils – with the entries in CPJ.
•
The bank statement – with the bank recon and CRJ and CPJ.
•
CPJ – with the documents they paid, e.g. Invoices or creditor statements.
(4)
Each audit evidence and what they are compared to.
4.6
Use the statement from The Cereal Factory to draw up the debtor's age analysis as it should have appeared on the statement.
Do not take the additional information into account.
Current
5 600 – 1 400 +
11 250
= 15 450
4.7
30 days
60 days
8 300 – 2 100 –
4 800
= 1 400
90 days
7 500 – 7 300
– 200
=0
(4)
Use the additional information to draw up the creditor's reconciliation.
Incorrect balance as per statement
16 850
Correction of invoice T108
900
Correction of invoice T120
(11 250)
EFT
(2 000)
4 500
Page 4 of 17
(4)
4.8How could cheque 1033 be in the bank reconciliation statement if it was received by The Cereal Factory on 28 November?
(This is not a mistake.) They may not have deposited it as yet.
It was delivered to Cereal Factory by hand, and they deposited it at the bank straight away, but it is still going through
the bank process and has not yet appeared on the bank statement.
(1)
4.9
Tubby is upset that he never received the discount when he paid on 3 October. Explain to Tubby why he was not granted the
discount.
His oldest debt was more than 10 working days old.
4.10
(1)
The Cereal Factory are concerned that Tub's Groceries are not keeping to their credit terms, but they do not want to
lose them as a customer, which they might do if they start charging them interest. Discuss two other procedures they
can put in place to increase their chances of Tub's Groceries keeping to the credit terms.
They can send (email) a statement every month.
They can phone to find out whether they received the statement.
They can SMS reminders.
They can phone and discuss payment.
Last resort – lawyer's letter.
Any procedure (not interest or discount unless they increased it)
(2)
Page 5 of 17
C – VAT
QUESTION 1
VAT
(15 marks; 9 minutes)
Refer to the information in the Information Booklet.
Calculate the amount owing to SARS in respect of VAT, at the end of April 2017 after taking the transactions given into account.
TRANSACTION Amount owing to SARS
N0.
1
5540√
1
(3200) √
2
260400√
3
(308) √√
4
546√
5
(138600) √√
6
(294) √
7
8
78√
42√√
9
21√√
124 225 (√)
[15]
QUESTION 2
VALUE ADDED TAX
Transaction
number
2.1.1
2.1.2
2.1.3
2.1.4
2.1.5
2.1.6
2.1.7
2.1.8
2.1.9
Amount owing to SARS
11 120
6420
+ 912
- 2 996
+156
+84
+9 408
+42
- 180
+ 9 520
21 644
•
•
•
Brackets = negative
No brackets = positive
Where only 1 mark is awarded: both
the sign & amount need to be correct
Where 2 marks awarded:
1 mark for sign
1 mark for amount except for 1.1.9
(15)
2.2
Creditors' Control
ACCOUNT DEBIT: ________________________________________________
Input VAT
ACCOUNT CREDIT: _______________________________________________
(2)
2.3
•
•
•
•
•
•
Asset belongs to the business therefore should be for business use.
Business has carried the cost of the vehicle, VAT and insurance and is getting no benefit from the asset.
Unethical for A. Mbali to let her son use the vehicle.
Business entity concept applicable.
If the poor cash flow position of the business is mentioned.
The business has already been closed down and should not have purchased the vehicle.
(3)
Page 6 of 17
D - MANUFACTURING ACCOUNTS
QUESTION 1
1.1.1
(50 marks; 30 minutes)
Calculate the value of raw materials on hand on 28 February 2018 using the FIFO method.
(5)
105 600ü + (2 100üü x R42ü= 88 200) = 193 800 R
1.1.2
Calculate the value of raw material cost that would appear in the Production Cost
Statement.
(5)
700m x R30 = 21 000 ü+ 494 800 ü - 4 200ü – 193 800 R = 317 800R
1.2
Calculate the value of direct labour cost that would appear in the Production Cost Statement the year ended 28
February 2018.
Normal time = 5 x 5 000 x 12 =
(7)
R300 000 üü
Overtime = 180 x 70 x 5 =
63 000 üü
UIF + Pension = 300 000 x 11% =
33 000 üü or 30 000ü+ 3 000ü
396 000 R
1.3
1.3.1
The business produced 4 000 jackets during the year. There was no work-in-process at the beginning or at the end of
the year. Factory overhead costs amounted to R67,55 per unit.
Calculate the total production cost of finished goods.
(5)
270 200
317 800 R + 396 000 R + (67,55 ü x 4 000 ü) = 984 000R
Raw M
Direct L
Factory o/h
1.3.2
Calculate the unit cost of production per jacket.
(3)
984 000(3.3.1) R / 4 000 ü = 246 R
1.4.1
Identify the number of metres of raw material fabric that appear to be missing.
(5)
7 200
9 100 ü – (1,8 ü x 4 000 ü ) = 1 900 metres üR
1.4.2
Apart from theft, give one most likely reason for this shortage. Using two points, advise Jonathan in this regard. (6)
Valid Reason: Wastage during production
Unskilled employees
Unusable materials/off cuts (Any 1 x üü)
Advice: Better supervision during production
Control over allocation of raw materials
Training of employees
Use of good quality material (Any 2 x üü)
1.5
Calculate the cost of sales for the year ended 28 February 2018.
(5)
31 240
103 320
(110 x 284) ü + 984 000R (3.3.1) – (420 x 246(3.3.2)) üü= 911 920R
1.6.1
Calculate the break-even point for the current financial year.
(4)
350 200 ü / 350 ü – 215.95 ü
= 350 200 / 134.05
Page 7 of 17
= 2612,45 / 2613 units R
1.6.2
The break-even point for 2017 was 2 273 units. Should Jonathan be satisfied or dissatisfied with the break-even
point for 2018 calculated in 3.6.1? Briefly explain.
(3)
Jonathan should be satisfied ü
The business has produced 4 000 units while break-even is 2613 units- profits will increase. üü
OR
Dissatisfied, break-even of 2613 units is higher than 2273 in 2017.
1.7
Jonathan has agreed to allow one of his workers to use the machinery over weekends to make t-shirts to sell when he
returns to his home in Botswana over Easter. The worker will pay a rental of R500 per weekend. Jonathan is not sure
how he would account for this income – as operating income in his Statement of Income, or in some way in the
Production Cost Statement. Suggest how you think this income should be treated, and why.
(2)
Income Statement:
Income is not usually accounted for in the Production Cost Statement.
The income does not relate to the t-shirts Jonathan has manufactured.
OR
Production Cost Statement income or deduction:
It reduces the actual cost of production.
It is an income that would not have been earned if he was not producing the t-shirts
Deduction from overhead costs as these can now be shared.
Any 1 x üü
Total: 50 marks
QUESTION 2 – Manufacturing
[39 marks; 24 minutes]
PRODUCTION COST STATEMENT
2.1.1
Factory Overhead Cost
Factory maintenance
19 404
Depreciation
32 390
Water and electricity (137 000 x ¾)√√
102 750
Rent expense (296 000 x 3/5) √√
177 600
Insurance (30 000 x 70%)√√
21 000
Salaries and wages (9 500 x 13 = 123 500) √√ + (950 x 52 +10% = 54 340√√)
177 840
Indirect material
35 730√
566 714þ
(12)
Page 8 of 17
2.1.2
PRODUCTION COST STATEMENT FOR THE YEAR ENDED 30 JUNE 2016
Direct material (42 400√ – 56 700√ + 118 500√ + 24 100√ – 32 800√)
Direct labour (7 x 6 400 = 44 800) √√ + (130 x 7 x 57 = 51 870) √√
1 159 500þ
589 470þ
PRIMARY COST
1 748 970þ
Factory overhead
566 714þ
TOTAL PRODUCTION COST
2 315 684þ
Work in progress – opening balance
43 300√
2 358 984
Work in progress – closing balance
COST OF PRODUCTION FOR FINISHED GOODS
(33 000) √
2 325 984þ
(17)
2.2
2.2.1
UNIT COST AND BREAK-EVEN POINT
Calculate the following:
Direct material cost per unit, indicated by (a) in the table in information 3 in the information book.
756 000 / 42 000 = R18√√
(2)
Factory overhead cost, indicated by (b) in the table in information 3 in the information book.
9 x 42 000 = 378 000√√
2.2.2
(2)
(2)
Give a possible reason for the change in direct material cost per unit.
New supplier / Closer supplier, less carriage / Negotiated for trade discount √√
2.2.3
Calculate the break-even point for the year ended 31 August 2016. The break-even point for the previous year was
23 064 units.
567 000√ / (60√ – 41√) = 29 842,1
29 843√ units to be sold to reach break-even point.
(4)
E
BUDGETS
QUESTION 1
BUDGETS
(30 marks; 36 minutes)
Round off cents to the nearest Rand.
1.1
Calculate the missing figures denoted by the letters "A" to "I". The "?" do not need to be calculated.
A
6 961 × 100/5 = 139 220
B
139 220 × 4 = 556 880 þ
C
A + B = 696 100 þ
D
134 660 × 5.52 = 706 650 OR 134 600 + 572 050
E
9 810 × 100 / 109 = 9 000
F
323 680 × 139/136 = 330 820
G
2 000 + 13 000 = 15 000
H
7 500 × 1.1 = 8 250
I
24 550 + 3 250 = 27 800
(9)
1.2
Write down two items that could be included in the cost of services.
Page 9 of 17
•
1.3
Any 2 cleaning material items, e.g. polish, jik, cloths, soap, upholstery cleaner, etc.
Any 2 ×
Calculate the rate of depreciation used on the industrial vacuum cleaner.
•
•
1.4
(2)
7 500 × ?/100 × 1/12 = 50
X=8%
(3)
Complete the Debtors' Collection Schedule for January 2018.
Calculations
November
January 2018
13 922 + 50 119
64 041
December
105 998
January
–
170 039
(3)
1.5
Calculate the missing figures denoted by the letters "J" to "M". The "?" do not need to be calculated.
J
F + R4 000 = 334 820 þ
K
13 000
L
38 125 + 3 250 = 41 375
M
7 625
(5)
1.6
Ella is getting frustrated because the vacuums and carpet cleaners are being broken on a very regular
basis. She knows that if she deducts the cost of repairs or the cost of new equipment off the workers'
salaries, their motivation and attitude will deteriorate, so she cannot do this.
Suggest two things she can do to ensure the equipment lasts longer and to help prevent the workers from
breaking the equipment.
•
•
•
•
1.7
Service or maintain the equipment regularly.
Let the workers buy/have the equipment when she replaces it.
Give bonuses to teams who keep their equipment in good order.
2x
(4)
Ella is considering expanding her business. Give three points she should consider when expanding, and
explain whether you think she should expand or not.
Points to consider:
•
Her cash position (surplus).
•
Whether she can find more contracts.
•
Whether each team can make a profit.
•
Whether she can find an affordable vehicle.
•
Whether the team's income is going to cover the expense of depreciation of the vehicle and cleaning
equipment.
Should they expand?
•
Any reasonable opinion based on the points to consider.
(4)
Page 10 of 17
QUESTION 2
Budgets
(25 marks; 30 minutes)
Refer to the Information Booklet for information relating to Nottingham Traders.
Complete the debtors' collection schedule by calculating the amounts missing denoted by an *. Note: Certain information has
been filled in for you and this information is correct. Do
not calculate the amounts denoted by a ?.
(4)
Collections
Total sales
Credit sales
September
October
August 2018
R250 000
R175 000
66 500ü
September 2018
200 000ü
140 000
October 2018
320 000
224 000ü
81 900ü
53 200
131 040
?
184240
Complete the Cash Budget for October 2015 by calculating the missing amounts denote
by an *. Note: Certain information
has been filled in for you and this information is correct.
Do not calculate the amounts denoted by a ?.
(14)
Cash receipts
October
Calculations:
Cash sales
96 000ü
Cash receipts from customers
184 240
Rent income
12 250
Total cash receipts
292 490
Purchases:
Sept: (120 000 + 3000) = R123 000ü
Oct: (192 000 + 3 000) = R195 000ü
Cash purchases
122 850
Payments to suppliers
36 900
Cash purchases for Oct:
• (195 000 x 70%ü) - 10%ü
Instalment on loan
10 000
Interest on loan
2 800
Cash Payments
Commission on sales
2 000ü
Salaries
60 261
PAYE
13 672
UIF
1 366ü
Drawings
7 000
Equipment
200 000
Other operating expenses
38 000
Total cash payments
494 849
Cash sales: (320 000 x 30%) = R96 000
Rent income: (3 750ü + 8 500ü)
= R12 250
= R122 850
Payment to creditors for Oct:
• (123 000 x 30%ü) = R36 900
Interest on loan:
240 000ü x 14% x 1 ÷ 12ü = R2 800
Commission on sales:
(200 000 x 1%) = R2 000
Salaries:
(8 000 - 1 600 - 80) ü+ 53 941ü
= R60 261
UIF: (683 + 683) = R1 366
What amounts will appear in the Projected Statement of Income for the month ended 31 October 2018 for Discount allowed
(2)
ü
(2,5 ÷ 97,5) x 11 040 = R3 360 ü
Or
60% x 224 000 = R134 400
2,5% x 134 400 = R3 360
Bad debts
(2)
140 000 x 2% = R2 800 üü
Calculate the average annual increase that the receptionist received on her salary for October 2018.
(2)
ü
480 ÷ 8 000 x 100 = 6% ü
The receptionist is not happy with the increase that she received.
She has approached you for help. Give her one reason why she should be happy with her increase.
(2)
Reason to be happy with her increase: Higher than the rate of inflation which is 5%. üü
Page 11 of 17
F
STOCK SYSTEMS
QUESTION 1 – Stock Valuation
1.1
[37 marks; 22 minutes]
Explain the meaning of the terms FIFO and Weighted Average stock valuation.
FIFO – Stock purchased first will be sold first√ √______________________________
___________________________________________________________________
Weighted Average – Value of all stock purchased over a period is added and average price per unit is calculated√√
(4)
1.2
The selling price of the rugby balls was kept constant throughout the year. Calculate the selling price per rugby ball.
430 500√ / 2 100√ = R205 √
(3)
1.3
The owner, Ed Sheeran, is aware that some rugby balls had been stolen out of the storeroom during April 2015. No
entry has been made.
• Calculate the number of balls that are missing.
• What double entry would you make in the general ledger to record this? Also provide the amount.
750√ + 2 480√ – 2 100√ – 1 100√
= 30 units stolen
Account debited – Loss due to theft√
Account credited – Trading stock√
Amount – 30 x 110 = R3 300√√
(8)
1.4
Value the stock on hand at the end of the year according to the FIFO method.
480 x 160 = 76 800√
620 x 120 = 74 400√√
R151 200√
(4)
1.5
Calculate the following:
Cost of sale
(750 – 30√√) x 110 = 79 200√
800 x 150 = 120 000√
580√√ x 120 = 69 600√
R268 800√
(8)
Gross profit
430 500√ – 268 800√ = 161 700
(3)
1.6
Sheeran is not sure when he should place an order for additional rugby balls.
• How long can he expect the closing stock to last? Provide a calculation to support your answer.
151 200√ / 268 800√ x 365 = 205,3 days√√ Stock on hand
OR
268 800√ / 151 200√ = 1,78 times per year√√ Stock turnover rate
Page 12 of 17
• What advice would you offer Sheeran in respect of the final stock? Provide TWO points.
Stock on hand is too high. Stock turn-over is to slow. √ This could lead to high storage fees and increased risk of
theft or damage to stock √√
(7)
Question 2
(48 marks; 29 minutes)
Refer to the Information booklet on page 5 and 6 for information relating to Boards Unlimited.
2.1
2.1.1
2.1.2
Calculate the value of Chalk Boards on hand on 30 June 2015.
10 x 550 = 5 500 ü
50 x 620 = 31 000 ü
= R36 500 (ü)
Calculate the value of the White Boards on hand on 30 June 2015.
45 500 + 281 250 + 42 350 - 8 000 - 4 000
65 + 385 - 10 - 5
(3)
(8)
357 100 üüü
435 üü
= R820,92
90 ü x R820,92 (ü) = R73 882,80 (ü)
2.2
2.2.1
2.2.2
3.2.3
Calculate the gross profit achieved on the sale of the Chalk Boards for the year ended 30 June 2015. (5)
Sales: R427 680 ü
COS: R66 000 ü+ 158 200 ü - 36 500 (ü) = R187 700
GP:
R239 980 (ü)
Calculate the profit mark-up achieved by Boards Unlimited on the sale of Chalk Boards for the year ended 30 June
2015.
(3)
(ü)
239 980
x 100
187 700 (ü)
1
= 127,85% (ü)
On average the business adds a profit mark-up of 140% to the cost price Chalk Boards.
Supply two reasons why
the mark-up percentage calculated in 3.2.2 is different
from the average mark-up added.
(2)
•
•
•
•
3.3
3.3.1
A trade discount or cash discount could have been given. ü
A bulk discount could have been offered to school who bought a number of units. ü
Two for one specials etc.
Coupons
Bryson Mansoor, the owner of Boards Unlimited is concerned that a number of White Boards have gone missing. Are
his concerns warranted? Show a calculation to prove/disprove that White Boards have gone missing.
(5)
65 + 385 - 10 - 5 - 320 = 115 üüü
115 - 90 ü = 25 (ü)
Or
65 + 385 – 5 – 90 = (345 üüü - 320 ü) = 25 ü
3.3.2
Explain one control measure that Bryson could implement to ensure that stock is not stolen. Note: You may not use
security camera's as a control measure and your control measure must be applicable to the nature of the business.
(2)
•
Stock should be locked in a storeroom and only opened by a supervisor to remove stock. üü
•
Proper document trail and authorisation for the removal of stock.
•
Search vehicles before they leave the premises.
•
Do stock checks on a regular basis.
3.4
Refer to information point 4.1 on page 5 of the information booklet. Why do you think that the price of both Chalk
Boards and White Boards decreased on 1 December 2015? (2)
Page 13 of 17
•
•
•
3.5
End of year specials by suppliers. üü
Old stock being sold at a discount.
Bulk discount
Determine the method of depreciation that is being applied to delivery vehicles. Show a calculation to support your
answer.
(4)
If cost price method was used total depreciation up until 30 June 2014 would be:
250 000 x 30 x 20% üü
1
12
= R125 000 ü
OR
30 June 2012: 20% x 250 000 x 6 ÷ 12 = 25 000 ü
30June2013: 20% x (250 000 – 25 000) = 45 000 ü
30 June 2014: 20% x (250 000 – 70 000) = 36 000 ü
Method of depreciation:
3.6
Supply two suitable reasons why you think that delivery van 1 was being traded in on delivery van 3. (2)
•
•
•
3.7
Diminished balance method ü
Delivery vehicle has become too expensive to maintain. ü
Keeps breaking down and repairs are costly. ü
Was involved in an accident.
Calculate the price at which vehicle 1 was traded in on vehicle 3. Hint: Prepare the asset disposal account.
Vehicles
Profit on sale of asset
250 000ü
5 000ü
255 000
Acc dep on vehicles *
Creditors control
(6)
130 000
125 000ü
255 000
ü
*(250 000 - 106 000) x 10 ÷ 12 x 20% = 24 000 ü
R106 000 ü + 24 000 = R130 000
3.8
What amount would be recorded in the Statement of Income for depreciation on 30 June
Delivery van 1
R24 000 ü
Delivery van 2
(300 000 - 25 000) x 20% x 12 ÷ 12 = R55 000 üü
Delivery van 3
360 000 x 20% x 2 ÷ 12 = R12 000 üü
Total amount to be recorded in the Statement of Income:
2015?
(6)
R91 000 ü
Page 14 of 17
G – ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS
QUESTION 1
ANSWER THE FOLLOWING QUESTIONS
1. The Percentage operating profit before interest on turnover (sales) for 2014 was 10,67 %. Calculate the
percentage operating profit before interest on turnover for 2015
3
172455x100/1440000 = 11,98%
2.
The percentage net profit after interest (profit before tax on turnover was 10,6 7% for 2014. Calculate
the percentage profit after interest (profit before tax) on turnover for 2015.
3
139995x100/1440000 = 9.72 %
3.
Comment what effect the renovations and expansion of shop premises has had on the business,
referring to your calculation above.
6
Increase from 10,65 to 11.98 increase of 1.31. could be due shop enlargement
NP after interest decreased from 10.67 – 9.72
4. Calculate the current ratio.
314 380 : 189 500
1.66 : 1
5.
Calculate the average creditors payment period if the credit purchases for 2015 amounted to 621 800.
Use only trader creditors in your calculations.
4
97500+87000 =
9250X365/621800
= 54.15 DAYS
6.
Comment on the liquidity of the business and suggest two ways in which to improve the liquidity. Refer
to the table with given ratios as well as your calculations in question 4 and 5 above.
Acid test ratio improved
Debtors collection got worse from 38days to 46 days
Creditors payment from 50 days to 54 days
Debtors collection must improve if credit policy is 30 days
Only pay creditors in 90 days if that is what the policy states
Keep stock low
7. Calculate the interest rate paid on the loan.
32500x100/500 000 = 6.5 % half year x 2 =
5
13 %
8.
Calculate the debt equity ratio.
4
450 000 : 934 880
0,48 : 1
9.
Do you think it wise for the business to take out a loan to finance the expansion of its store? Refer to
your calculations in question 7 and 8 as well as the ratio for return on capital employed on the given
table.
6
Lowly geared and credit worthy
ROCE = 15, 9 % only 2,9 % higher that % of the loan – ROCE increased means we are using the money well
DO NOT LOOK AT ROSE
10. How much has been paid to SARS for income tax during this year?
12000 + 48984-11250 = PAID = 49734
11. Calculate the dividends per share (in cents).
100 000
90 971
8
NPAT
Page 15 of 17
(106091) Total dividends
84880
106091/400 000 = 26.5cents
12. The company offered R2.10 per share to a shareholder holding 50 000 ordinary shares. Advise the
shareholder whether this offer must be accepted or not.
5
934 880X100/400 000 = 2.33
No offer not acceptable at all. Below the NAV of R2.10
13. List two ways in which debtors could be encourages to pay their debt earlier.
Offer discounts for early payment
Charge interest
QUESTION 2
FINANCIAL INDICATORS
Calculate the following:
Acid Test Ratio
3
5204 : 955
5.45 : 1
Stockholding period for which stock is on hand
2
670+787 = /2 =
787 / 4238
= 68 days
Average debtors’ collection period
4
3766+3421 = /2
3593.5x365
= 134 days
Gearing ratio (debt-equity ratio)
2
97 : 6219
0.02 : 1
Return on equity of 39 % would have been calculated using which formula?
1
NPAT/Average OSE
Return on average capital employed.
4
3366/6197 = 54 %
Cost of sales.
Gross profit margin 56.6
3
100 – 56.6 = cos = 43.6
9765x56.6/100 = 5527
9765-5527 = 4238
Earnings per share
2
2408/417,8
= 576,35
Net asset value
2
6219/417.8
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= 1488,5cents
If you had 10 000 shares in Truworths Limited, what amount would you have been paid
out in September?
2
10 000 x 158 /100 = 15800
What does triple-bottom line reporting include?
3
Economic
Environmental
Social
QUESTION 3
If you are asked the following questions – what ratios would you consider?
Did the business achieve its profit margin?
•
Gross profit on Cost of sales
•
Gross profit on Sales
How well does the business control its overheads/expenses?
•
Operating expenses on sales
•
Operating Income on sales
•
Net profit after tax on turnover
Will the business be able to pay short term obligations (debts), such as bank overdraft, creditors and short term
loans? How well did the business manage their working capital?
•
Current ratio
•
Acid test ratio
•
Net working capital Current Assets – Current liabilities
How effective the business manages its working capital will have an effect on its liquidity.
•
Stock turnover rate
•
Stock holding period
•
Average debtors collection period
•
Average creditors payment period
Do your assets exceed your liabilities
•
Solvency – Total assets : Total Liabilities
How is the business financed? Is the business credit worthy/low geared? Will the bank grant the business a loan?
•
•
Debt Equity ratio
Return on Capital Employed
Does the business offer a good return on the capital invested in the business?
•
RETURN OF OWNERS EQUITY
•
How do we value the economic status of a company (Market value ratios)
•
NAV
•
DPS
•
EPS
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